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What are the Articles of Incorporation?

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What are the Articles of Incorporation?

Articles of incorporation in Canada is a legal document required for the incorporation process and is filed with either a provincial/territorial government or federal government. They outline the purpose and regulations of the corporation. This allows for the formation of a business that is a separate legal entity from the owner of the business.

There are various terminologies used to describe the articles of incorporation including incorporation, corporation, limited liability, limited company, LLC, letters patented, and certificate of incorporation.

Often, there are requirements that Canadians or permanent residents should represent a certain percentage of ownership. Particularly in Canada, there is a requirement that Canadian or permanent residents should represent 25% of the directors listed. If you do not meet these requirements, you may like to consider alternative options such as incorporating in another province/territory or registering as a small business.

How to get Articles of Incorporation

The necessary information to file your articles of incorporation can be accessed from the associated provincial or federal websites and governing bodies for the incorporation process.

When filing for federal incorporation, the required forms are available for access from Corporations Canada. On the other hand, when filing for provincial incorporation, the forms required to incorporate are accessible from the associated provincial registrars’ website.

To file the articles of incorporation, although it can be done personally, it is highly suggested to be completed by a lawyer or an experienced accountant who is familiar with the process to ensure that no requirement is missed.

Why do Individuals File the Articles of Incorporation

There are two options available for business to either register as a small business or incorporate through the filing of the articles of incorporation. The decision is weighted on the cost and benefits of both options for businesses. Usually, the reason businesses choose to incorporate is that they are eligible to do so and due to the advantages of doing so.

By filing for incorporation, a business is deemed a separate legal entity and thereby individuals are separated from their business and its liabilities; this concept is referred to as limited liability. This means that for any business obligations, debts, or company actions, owners are not personally liable. Whereas with sole proprietorships and partnerships, the owners and business are considered to be a single legal entity and as a result, owners are personally liable for the company’s actions and obligations.

Filing for incorporation allows for protection of the name of your business. When your business is incorporated, they are granted protection from other businesses utilizing the same name within the jurisdiction the business is incorporated in.

A primary benefit to businesses by incorporating is the possible tax savings as a result, depending on your circumstances. In general, corporate tax rates are lower than the personal tax rate, however, for this to become a benefit for you, your business will have to make a considerable amount of income first. There are many more tax advantages, however, you should speak with a  professional accountant in Toronto who can have a discussion with you about your specific business circumstances and tax benefits available to you.

By incorporating, it makes the process to divide and transfer the business to other members easier. This is usually advantageous to owners at the time of retirement when wanting to pass the business along to their family. When you have the business structured as a corporation, you are able to easily divide the business and allocate the business shares without having to transfer the assets.

By incorporating, it meets the needs of some customers and organizations who prefer to do business with a company that is registered as a corporation. In addition, incorporating enables businesses to access loans, grants, and avail itself to more opportunities.

What Information is Required to File the Articles of Incorporation

The information required for the articles of incorporation are: the full legal name of the corporation from the name search report, full address of the registered office of the corporation, number of directors, full names and address of related directors – it is mandated for most Canadian corporations that at least 25% of the directors are residents of Canada, business operation and power exercised limitations, classes of shares and the maximum amount that can be issued of each class of shares, the rights, privileges, and restrictions must be outlined, any restrictions regarding the issuance, transfer, or ownership of shares, provisions or restrictions upon the borrowing powers by directors, supplemental articles requires, and the incorporators full names and signatures.

It is important to note that the articles of incorporation may contain additional provisions, however, this is dependent on the jurisdiction for which you choose to incorporate as filing requirements vary for each. It is highly recommended to review the statute regarding the business incorporations prior to filing.

 

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