Incorporation, a form of business ownership that creates a distinct legal entity separate from its owners or shareholders, is often an important consideration for women entrepreneurs who may want to expand their businesses. The prospect of incorporating your business may seem overwhelming or confusing, but with the right support it doesn’t have to be.
A significant advantage to incorporation is that no owner of an incorporated business can be held personally liable for the debts, obligations, or acts of the company. But according to our first annual report on the state of women’s entrepreneurship in Canada, women are less likely to be incorporated and have paid help (15.3%) compared to men (26.2%). This means that women entrepreneurs often have to put their personal assets at risk, unlike owners of incorporated businesses. Additionally, without being incorporated, women entrepreneurs risk losing access to key financing sources, government programs, tax credits and other small business deductions.
Promoting incorporation is one key strategy to tackle the complex issues facing women entrepreneurs. The resources on this page will help demystify the benefits and process to incorporation for entrepreneurs looking to take this step in their business journey.
Demystifying Incorporation Workshop Series:
To help women entrepreneurs better understand the process and potential benefits of incorporation, the Women Entrepreneurship Knowledge Hub hosted a two-part workshop series on Demystifying Incorporation.
We have curated a number of important resources to help women entrepreneurs understand the process of incorporation in Canada.
- “Choose the right structure for your business” by BDC: This article outlines how to find the business structure that best supports your goals. It explains basic concepts such as sole proprietorship, partnership, and incorporation.
- “The advantages of incorporating your business” by BDC: This article outlines the benefits of incorporating to grow your business.
- Corporations Canada Overview Presentation by Corporations Canada: This presentation outlines what Corporations Canada’s role in incorporation and what it can do to support your business. It is also available in French.
- Incorporation Tutorial by Martin Lacelle of Corporations Canada: This is a filmed walk-through of the federal incorporation process. Follow along at home!
“Why should I incorporate?”
Frequently asked questions on the why and how to incorporate your business
These questions and answers have been collected as part of the Women Entrepreneurship Knowledge Hub’s “Incorporation Part 1: Why should I Incorporate?” webinar. Expert answers have been summarized and edited for clarity.
Ask the Lawyer – Aliya Ramji, Partner, McCarthy Tétrault, and co-founder of MT>Ventures
Q: What is the role of the lawyer in incorporation?
A: The role of the lawyer is primarily to look out for risks to your business down the road. However, the lawyer could also be leveraged as a resource to explore future opportunities.
Q: What are the basic requirements for incorporation, and what’s the baseline requirement?
A: You need to have a name, directors (25% of which must be Canadian residents), articles of incorporation, and the capacity to submit the required tax forms and paperwork.
Q: Is it possible to have a not-for-profit organization inside of an incorporated business?
A: Yes it is possible, but it’s something the lawyers need to work out. For example, see the WealthSimple Foundation inside the for-profit organization Wealthsimple.
Q: What types of nonprofits can make money to ensure the organization can grow?
A: There are differences between a not-for-profit organization and a registered charity. A nonprofit is allowed to make money as long as you are reinvesting the money into the nonprofit, whereas a charitable organization is under stricter rules.
Ask the Banker – Laura Didyk, Vice President and National Lead Women Entrepreneurs, Business Development Bank of Canada (BDC)
Q: What does BDC offer women entrepreneurs?
A: BDC is a business advisory services group and a venture capital fund for tech businesses.
Q: If one establishes a business with the intention to eventually incorporate, should one do so earlier or later?
A: It is better to incorporate sooner rather than later, or registering as a sole proprietorship then incorporating. This is because any credit established with the bank as a sole proprietorship will not be carried forward once incorporated.
Q: Are there any considerations we should be aware of in the lending process and when a business transfers assets to the bank?
A: One consideration is that the bank takes a general security agreement on any assets once you take out a loan.
Q: Does BDC and the wider financial ecosystem recognize online digital business owners?
A: They do recognize them, but there are challenges such as finding collateral, since these businesses may not fit into traditional business models. However, BDC does work with many digital tech businesses and has venture funds and business advisors for all types of businesses.
Ask the Accountant – Stefanie Ricchio, CPA, CGA, Published Author, Professor and Entrepreneur
Q: What is the biggest accounting difference with incorporating?
A: The biggest difference is in how you have to prepare a T2: while you still need to submit a T1, you will need much more information to generate a T2. Most business owners can’t create a T2 on their own without an accountant or professional.
Q: When you file corporate taxes, what materials and records will you need?
A: You need to maintain all taxes and transactions with complete financial statements. Most people use a professional bookkeeper or accountant for this.
Q: How can we use incorporation to reduce tax burdens?
A: Incorporated companies can retain income within the company and use it for investments and future use. Any income you don’t take personally, you can defer to future years.
Q: If you are the sole proprietor, do you need to create a T4?
A: You don’t need to make a T4. Instead, incorporated companies need to have a payroll account with the CRA, where you submit payroll taxes. This is where companies will need someone tracking these requirements for corporate tax filing.
Q: How much does it generally cost to hire an accountant to prepare and file corporate taxes?
A: To get tax returns filed, it costs around $100 to prepare an individual person’s returns. For a smaller SME, it can be anywhere from $750 to $2000.
Q: Do you need to calculate your own deductibles?
A: Yes, since you will be taking your own deductibles you will need to submit payroll taxes on the 15th of the following month, and include CPP reductions. In addition, if you are the sole owner/employee of a company, you aren’t eligible for EI because you can’t lay yourself off.
Ask the Government Expert – Yasmine Chaouni, Corporations Canada (CC), Manager, Examination
Q: Can you incorporate both federally and provincially?
Q: Do you need a board of directors to form a corporation?
A: It is not mandatory.
Q: What are the requirements for a business name?
A: A unique element, a descriptive element, and a legal element (i.e. Inc, ltd, corp). The unique and legal elements are mandatory and the descriptive element is optional. In Canadian law, there is no difference with the legal elements that exist (i.e. inc, ltd, corp), and selecting one or the other is up to personal preference. If incorporated provincially, a business can only use the name provincially and will need to register with each other province to verify if the name is available for use.
Q: How long does the incorporation process take?
A: Once you submit, you can get a response within one day.
Q: Why would you want to incorporate provincially or federally?
A: Federal benefits include doing business across Canada versus just doing in one province, protecting your name, and the flexibility of relocating and being a Canadian entity for export purposes.
Q: How can we get a business account number?
A: Corporations Canada will send you a business account once you submit the paperwork, and if you want additional business accounts you should contact the CRA. For provincial registration you can do it at the same time, or separately on your own.
Q: Can you incorporate as a sole director of a company?
A: You can incorporate as a sole director but you need to be a Canadian resident (25% of directors need to be Canadian residents).
Q: How much does the paperwork cost?
Both incorporation packages (numbered and named organizations) are $200, but differ a little in complexity and requirements.