Business owners have many considerations when considering whether or not to incorporate. There are plenty of advantages to incorporating your business in Canada, but there are a few drawbacks to consider as well. As you begin to weigh the pros and cons, the incorporation costs are one of the points you’ll likely want to closely evaluate.
To help you make the right decision for you and your business, here’s a breakdown of the costs, and some of the benefits of choosing Ownr if you decide now is the right time to incorporate your business in Canada.
What does it mean to incorporate?
An Incorporation is a type of business structure and ownership that designates a business as a separate legal entity from its owners. When you incorporate your business, you create a corporation that has the same rights as a person. This kind of business ownership contrasts with the most basic business structure, a sole proprietorship, in which there is no legal distinction between a business and its owner.
Reasons to incorporate your business?
There are several key reasons why entrepreneurs choose to incorporate.
A corporation is its own legal entity with separate taxes and debts. This means your personal assets, such as your home and car, are more protected against creditors if your business defaults on its debts or if legal action is taken against your business. By contrast, if you don’t incorporate, there is no separation between you and your business, which means you can be held personally responsible for debts, losses, lawsuits, and other risks.
Corporations are taxed differently than individuals and, in many situations, this means they have a lower tax rate. There are also typically more tax deductions available for incorporated businesses. On the other hand, businesses that operate as sole proprietorships or partnerships generally pay a higher personal income tax rate on their profits. By incorporating, entrepreneurs can leave more money in their incorporation instead of transferring it to a personal account, and reduce how much tax they need to pay.
Incorporating your business can sometimes enhance your ability to raise capital. Some government grants are only available to incorporated businesses. Incorporation can also make your business more attractive to angel investors and give you the option to sell shares.
Since a corporation is legally separate from its owner, it’s easier to transfer ownership to others. Corporations continue to exist until they’re dissolved, regardless of what happens to the owners. This can be helpful when estate planning, or if you decide to step away from the business and transfer your shares to another individual.
How much does incorporation cost in Canada?
This can be a tricky question to answer. You’ll often hear that the cheapest way to incorporate your business is to go directly to the government option. But in reality, the government option doesn’t actually complete your incorporation, and you’ll likely still need to hire someone to prepare all the documents that allow you to run your corporation compliantly.
When we’re looking at base fees, the cost to incorporate your business depends on whether you choose federal or provincial incorporation, with provincial incorporation fees differing from province to province.
Provincial incorporation costs
One option is to incorporate your business in the province or territory in which you operate. The registration requirements vary by location, but they typically include offering services or products in that province or territory, as well as having a business address, post office box, or phone number in that province or territory.
Provincial incorporation can be an ideal option if your long-term business plan is to remain local. If you choose to incorporate your company provincially, your business name is only protected within the province where you’re registered. This means you could run into issues if you decide to operate in other provinces down the road.
Provincial incorporation costs depend on which province or territory you want to incorporate in.
Saskatchewan: In Saskatchewan, it costs $265 CAD to incorporate, plus a fee of $60 for a search report for named corporations.
Manitoba: The government incorporation fee in Manitoba is $300 CAD, plus a search report fee of $49 for named corporations.
Ontario:In Ontario, it costs $300 CAD to incorporate a business online or by mail. There is an additional $60 fee to register your business name.
Quebec: Incorporation in Quebec costs $356 CAD, with an additional $50 charged for the business name search.
New Brunswick: In New Brunswick, it costs $290 CAD to incorporate, which includes a government fee of $260 plus a name search report fee of $30.
Nova Scotia: The fee to incorporate in Nova Scotia is $200 CAD, plus a $70 fee for a name search report.
PEI: It costs a total of $255 CAD to incorporate in PEI, which covers the government fee and the name search report fee.
Newfoundland: In Newfoundland, the fee to incorporate is $300 CAD plus a $300 charge for a name search report.
Yukon: Incorporation in the Yukon cost $345 CAD, which covers a basic government charge and a corporation name search fee.
Federal Incorporation costs
Entrepreneurs also have the option to incorporate federally, which gives your business increased name protection and broader rights to conduct business across Canada. If you incorporate provincially, your business name is only protected in that particular province whereas, by incorporating federally, your business name is protected across the country.
Federal incorporation grants your business the right to carry out business anywhere in Canada, and your head office can be anywhere across the country. Keep in mind that, if you incorporate federally, you’ll also need to register your business in the province where your company is located.
In order to incorporate federally, at least 25 percent of your business’ directors must reside in Canada and be Canadian citizens or permanent residents. The basic fee for federal incorporation is $200 CAD, making it a cheaper option than provincial incorporation.
Additional incorporation costs to consider
In addition to the basic fees you’ll pay to incorporate federally or provincially, there are several costs associated with running a corporation that you’ll want to keep in mind.
One-time incorporation costs
In some provinces, select private sector firms act as authorized service providers for incorporation, which means you also need to pay the firm you choose to work with for their services. Additionally, some business owners choose to hire a lawyer to take care of the incorporation process, which can add thousands of dollars to the total expense.
Ownr offers a more affordable, no-fuss alternative to provincial or federal incorporation, helping you navigate required documents and automatically filing the necessary information with the government.
If you incorporate federally, you’ll also need to register your federal corporation in each province or territory in which it will operate. Most provinces and territories charge for registering a corporation, with the fees varying by region.
If you run your business with partners, you may want to create a shareholder agreement. This will help protect the business from any issues or disagreements you may have with your partner down the road. Most businesses hire a lawyer to draw up a shareholder agreement, which typically costs somewhere between $500 and $1,000 CAD.
Ongoing incorporation costs
The government requires corporations to file an online return that provides up-to-date information on the business’ address, date of last annual meeting, details about its directors and officers, and other key details.
This filing is separate from your corporation’s income tax return and is completed annually on the anniversary of your business’ incorporation. You may face financial penalties or an administrative dissolution of your corporation if you fail to complete this annual return.
There are fees associated with this annual filing, which vary based on whether your business is incorporated at the federal or provincial level.
You’ll also need to file an annual tax return for your corporation, which is separate from your personal tax return. The fees associated with this will depend on the service you choose to complete the filing.
Are you ready to incorporate, but uncertain if it’s worth the investment? Here’s a closer look at the incorporation costs you can expect for your business.
Now that you have a better understanding of the costs of incorporation, you can decide whether it makes more sense to incorporate your business federally or provincially, as well as how you will submit the necessary documents. Take the time to think through this big decision carefully and make the choice that’s right for your specific business and goals.