This incorporation information sheet provides background information on the steps needed to incorporate your business and some general information on running a business. This information is applicable to incorporations under the Canada Business Corporations Act (CBCA) and Business Corporations Act (Alberta) (ABCA).
Why should I incorporate?
When you incorporate, you create a separate legal entity. As a separate legal entity, a corporation has its own assets and liabilities, and its affairs are separate and distinct from its directors and members. A corporation continues to exist beyond the life of its founder.
Incorporating limits your liabilities. Shareholders are typically not liable for any of the actions of the corporation. Except for certain liabilities, like employee wages or breaches of duties to the corporation, directors also cannot be held personally liable for the actions of the corporation.
Incorporating also offers different tax options. Qualifying Canadian-controlled private corporations are typically taxed at a combined rate of 11% in Alberta on the first $500,000 in taxable income and 27% after that. If you incorporate, you can take money out of the corporation as an employee through salary or as a shareholder through dividends, among other options.
What are my incorporation options in Alberta?
Alberta for profit businesses can incorporate under the Canada Business Corporations Act (CBCA) or the Business Corporations Act (Alberta) (ABCA). There are other options for non-profits and cooperatives. Companies planning to expand across Canada or companies looking for name protection across Canada will typically incorporate under the CBCA and companies focused on Alberta only typically incorporate under the ABCA. A federal CBCA company still needs to extra-provincially register in every province it does business in. You can file the incorporation yourself if incorporating under the CBCA, but you are required to use a registry agent if incorporating under the ABCA. In either case legal advice is recommended.
What is a B Corp?
In Alberta, a B Corp is a certification that you can apply for. The B Corp certification measures a company’s entire social and environmental impact. If you are thinking about B Corp status, it is recommended that you seek legal advice and consider this option at the outset, as the certification requires specific provisions in your articles of incorporation. Alternatively, you can amend your articles later. Either way, you would still incorporate under the ABCA or CBCA.
What is the process to incorporate?
Step 1 – Choose name and determine structure.
Step 2 – Complete incorporation documents.
Articles of incorporation – this includes your core constating information like name, share classes, restrictions, # of directors.
Notice of registered and records office (where your company can be served and where your minute book is kept). You will also need an agent for service, which is a specific individual (with address) that can be served on behalf of your company.
Notice of initial directors.
Step 3 – Complete the incorporation. Depending on whether you file yourself or through a registry or through a law firm, this takes 0-2 days for both the CBCA and ABCA.
Step 4 – Complete organizational documents. Discuss ongoing requirements and annual maintenance.
Bylaws – these set out how you will run the organization – shareholder meetings, director meetings, signing authorities, etc.
Shareholder resolutions – approve bylaws, appoint directors, waive/appoint auditor
Director resolutions – accept shareholder subscriptions, appoint officers
Form of director’s consent
Directors & officers register
Step 5 (CBCA only) – Extra-provincial registration in Alberta.
A corporate name must be distinctive, descriptive, and legal. ‘ABC Building Supplies Ltd.’ Is an example of a corporation name that contains all 3 elements.
A name is distinctive if there is a unique word or location that makes your corporation’s name different than others. In the above example, ‘ABC’ is the distinctive element.
A name is descriptive if it describes what the corporation does or what the corporation is. In the example above, ‘Building Supplies’ is the descriptive element.
A name is legal if it contains the legal element at the end of the name, such as “Limited”, “Limitee”, “Ltee”, “Ltd.”, “Corp.”, “Corporation”, “Inc.”, “Incorporated”, “Incorporee”. A professional corporation can only be used by certain regulated professions.
Once you choose a name, you need a NUANS report to confirm that no other corporation has an identical name or a name that is too similar to your proposed corporate name. The NUANS report will reserve the proposed name for 90 days. Your corporation can also use a ‘number’ name, which is assigned by the applicable corporate registry.
Default Class of Shares and Rights For All Classes
Voting common shares (two classes) with the right to vote, the right to received dividends, and the right to receive the remaining property of the corporation after it is dissolved.
Non-voting common shares with the same rights as the voting common shares, except there is no right to vote. Dividends can be declared differently for each class of common shares.
Preferred Shares that have preferential treatment over the common shares with respect to dividends, no voting rights, and the ability to be repurchased by the company. The preferred shares can be issued in one or more series, with the terms to be determined by the directors.
Why would I restrict share transfers?
Transferring shares refers to the purchase and sale of shares. All companies are subject to the requirements of the provincial securities act. When it comes to the future issuance of shares, private companies typically use the Private Issuer Exemption to be exempt from significant securities requirements. To use this Private Issuer Exemption, you must include share transfer restrictions in your articles of incorporation. As well, you cannot have more than 50 shareholders (excluding employees) and you may only issue securities to specific people close to the company (i.e. directors, officers, employees, existing shareholders, certain family members, close friends, close business associates and accredited investors).
What are shareholders, directors, and officers?
Shareholders own the company through their shares. Shareholders elect directors to manage the affairs of the company. Directors typically appoint officers to carry out certain duties.
Shareholders elect directors, appoint auditors, and receive financial statements typically through ordinary (majority) resolutions. Shareholders need special resolutions (2/3rd vote) to carry out fundamental changes like amending the articles, amalgamating, continuing, or selling substantially all the assets of the business.
Directors need to pass resolutions both as set out in the Act and as determined by their own charter. In general, directors of private companies need to approve the appointment of officers; any issuance, transfer, or repurchase of securities; any debt or incumbrances on the assets of the company; declaring dividends; major transactions and contracts; bylaws; financial statements; and major shareholder communications.
Officers carry out the duties assigned by the directors. Some duties will be on behalf of the board – i.e. duties carried out by the board chair, vice-chair, secretary, and possibly treasurer. Typically, the directors will also appoint a chief executive officer or president who will in turn hire all other employees (some of whom may be designated as officers of the company as well).