By Catherine Tian
Disclaimer: The information contained in this article is general in nature and does not constitute legal advice. Please contact the Law Office of Jeff J. Li, or another experienced business lawyer if you are concerned about your business law issues.
Having chosen the corporation as the appropriate form of business organization, one must consider in which jurisdiction to incorporate. A business based in Ontario may choose to incorporate “provincially” under the Ontario’s Business Corporations Act (OBCA) or “federally” under the Canada Business Corporation Act (CBCA). In some cases, incorporation in another jurisdiction may be appropriate, for example, to avoid extra-provincial licensing requirements or to take advantage of less stringent residency requirements for directors.
A federally incorporated corporation has the right to carry on business and use its name in all provinces. By contrast, a corporation incorporated under the OBCA can only carry on business in Ontario unless it obtains a licence under the extra-provincial licensing statute of another province. Unlike the situation with a CBCA corporation, this registration or licence may not be granted if the name of the Ontario corporation is not acceptable in the province where application for the registration of licence is being made. Where the corporation will be carrying on business outside of Canada, it may be preferable to incorporate federally, since foreign parties may be unfamiliar with Canada’s federal structure and the powers of the provinces in matters of commerce.
Incorporation under either the OBCA or CBCA requires filing articles of incorporation in the form prescribed by the regulations with the appropriate government department, together with the required supporting material and fees. On receipt, a Certificate of Incorporation will be issued and the corporation comes into existence on the date shown in the certificate.
Finding an acceptable name for the business can be a time consuming step in incorporating. The use of a number name will expedite incorporation and may be acceptable where the corporation will not be carrying on business in the public domain. When incorporating other than with a number name under the OBCA, an original search report from NUANS dated no more than 90 days prior to the date of submission, together with any appropriate consents must be submitted. Under both the OBCA and the CBCA, the proposed corporate name cannot be the same as or similar to that of any known entity if the use of that name would be likely to deceive or be deceptively misdescriptive. Since the responsibility for the selection of a name, particularly for an OBCA corporation, is placed upon the applicant, great care must be taken to ensure compliance with the statutory provisions.
The OBCA and CBCA contain certain residency requirements in respect of directors of a corporation. Both permit one director to manage and supervise the affairs of the corporation, unless the corporation is an offering corporation in which case it must have at least three directors. Twenty-five percent of the directors of a corporation governed by the OBCA or CBCA, other than a non-resident corporation, shall be resident Canadians, but where a corporation has less than four directors, at least one director shall be a resident Canadian. Under the OBCA, at least one-third of the directors of an offering corporation must not be officers or employees of the corporation or any of its affiliates.
Certain applications for incorporation may require approval by other government departments and/or administrative agencies before they are filed to ensure that the requisite licences will be granted. Examples include real estate brokers and insurance agents. It is always advisable to seek professional assistance to ensure the correctness of the content of the articles filed.
Both the OBCA and CBCA require that certain corporate records must be kept, including a copy of the articles, by-laws, any unanimous shareholder agreement known to the directors, etc. Although not required by legislation, a corporation’s by-laws regulate its business and affairs including the procedures for meetings of directors and shareholders, signing authority, directors’ remuneration and indemnification. To be effective, the by-laws and any amendments or repeals must first be approved by the directors, then passed by the shareholders at their next meeting. It is important to review the by-laws with professional solicitors to ensure that the incorporating directors and shareholders are not adopting unnecessary or unwanted procedures.