In our most recent blog post on incorporation, we talked about when it might be time for your small business to incorporate. Once you’ve decided to make that move, you likely have some follow-up questions based on things you’ve heard from other business owners. Should I incorporate federally, or provincially? How do I protect myself? What should I do next?
Here are a few of the most common questions that we’re asked and a few thoughts to consider as you head towards incorporation:
What’s In A Name?
Are you ready to make the leap from just operating under your first name? There are some key things to consider when you name your business. Is it a brand name that’s going to be memorable? Is it something that’s easy to say, and easy to spell? Is it going to resonate and have meaning with your customers? Most importantly, is someone else using it already?
That last one is crucial, as your business name needs to be unique to you. Businesses work to protect their names, and some can be aggressive in defending their intellectual property. So no, just because you love doing children’s animation, you cannot legally go and call yourself ‘Walt Disney’ without expecting a very aggressive letter in the mail.
Think about a blend of words that make you unique, but also say what you do. A strong business name is usually going to have a one-word description of your services (‘legal,’ ‘accounting,’ ‘catering’) but also a word or two which sets it apart from others in the field, which may even be your name.
Designs By Mary, for example, suggests that Mary is involved in the business and that she does some form of art (although it is not clear which). Jonathan Wilson Catering is even more direct, even if Jonathan has other chefs working under his guidance. Think about how people will remember your name - they may shorten it, or use an acronym, but it’s still important to be clear and memorable.
When you incorporate, your lawyer will help you run a search to make sure that the name you want to use is not already in use and protected. If it is, you’ll likely need to keep racking your brain for how you can change it up or add that unique twist.
Federal or Provincial?
When you incorporate a business, you have two options in Ontario - incorporating federally, or incorporating under the province of Ontario. The choice you make may be strategic depending on the sort of business that you will be running.
A federal incorporation may be preferable if you’re doing business across Canada. That will help ensure that your business incorporation name is protected federally, so a competing business with the same name cannot open in Alberta, or PEI, or Nunavut. It may also be better for doing business abroad - if you have international clients, then a Canadian corporation gives you a level of stature and credibility that are more recognizable in foreign markets.
When choosing that business name, federal vs. provincial incorporation will make a big difference. Corporations Canada is strict about the name application process, and refuses any name that may confuse your business with a competitor. If you are incredibly close to another name, your application may be denied. In Ontario, the provincial government is much less strict, so long as your name is not identical to one that is already protected, it will be accepted. However, this does not eliminate legal risk. Even if a name is accepted, it may still be challenged if it creates confusion with an existing business. Approval does not equal immunity.
Depending on the nature of your corporation, you may want to assess how much of your corporation you’re open to making public. If you have family members as shareholders for example, or you’re incorporating to try to protect your privacy, provincial incorporation may be preferable. Federally-incorporated companies need to publicly disclose voting or significant shareholders (generally, shareholders who own over 25%).
For Ontario corporations, this information only needs to be maintained in a corporate minute book but is not publicly available. This may not be a consideration for your small business, but if you are in a business where you’re looking to protect the privacy of those involved, provincial incorporation may have certain advantages.
Who’s Going To Be In Charge?
Your business lawyer will work with you to set up the logistics of your corporation, but it’s important to give thought to who’s going to be in control, and what sort of ownership are they going to have. Are you a solopreneur who is incorporating, and you want to maintain 100% ownership of the business? Do you have a spouse or partner who is involved and who should get a share? Will they receive a 49% share so that you stay in control?
Your lawyer will review with you the different options for ownership and control within the corporation. You can set up shares for individuals who may have an ownership stake, but do not have any voting say in how the business is run. You may want to have other individuals alongside you as officers who are also in charge of the day-to-day operations.
The business may also change over time, and you may want to bring other partners into the mix or offer shares to investors. Work with your lawyer to draft agreements that allow you to do this, while still protecting your interests in case there are any issues later on.
Final Thoughts
Incorporation is not as simple as waving a magic wand. Working with a business lawyer can help ensure that your business starts off on the right foot. Their job is to draft agreements that not only comply with the law but allow you to grow comfortably while they provide the security of sound legal advice.
