Ontario Corporation

Disclaimer: This article on your Ontario corporation is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

Deciding to incorporate is a big step. (In fact, we have an entire article designed to help you weigh the pros and cons of incorporating.) However, incorporating is just the beginning. If you do decide to incorporate, there are several areas that you will need to manage and maintain.

This article covers some of the basics of managing your Ontario corporation. As your business grows, you must pay close attention to corporate governance and compliance issues. Properly set up your corporation and meet all your obligations by consulting with a professional.

Beeksma Law is a full-service law firm helping business owners in Ontario with all aspects of their corporations. Contact us today to find out how we can help you.

So let’s dive in and consider more about what you may need to consider with your corporation.

Directors vs. Officers vs. Shareholders

The board of directors is responsible for managing the corporation and making decisions on behalf of the shareholders. The board may delegate authority to officers who carry out the corporation’s day-to-day operations under the directors’ guidance. Shareholders are the corporation’s owners and have a say in how it is run through their voting rights.

The directors, officers and shareholders can be the same person or multiple people in each role. It all depends on the size and structure of the corporation.

Professional Corporations and Liability

One specific class of corporations is “Professional Corporations.” The Ontario Business Corporations Act limits professional corporations to professions governed by an Act named in Schedule 1 of the Regulated Health Professions Act, 1991, one of the following Acts or a prescribed Act:

• Chartered Professional Accountants of Ontario Act, 2017.
• Law Society Act.
• Social Work and Social Service Work Act, 1998.
• Veterinarians Act. 2000

The Act further requires that professional corporations have shareholders who are all members in good standing of the governing professional body and are authorized by that body to provide those professional services. Additionally, these corporations must have “Professional Corporation” or “Corporation Professionnelle” in their corporate name.

Generally, the rule is that the shareholders of an Ontario corporation are not liable for the debts of the corporation. This limited liability protection is one of the main reasons to incorporate your business. A corporate order is needed to “pierce the corporate veil” or hold shareholders liable. Professional corporations, however, do not always offer the same level of liability protection to their shareholders as general business corporations.

For example, if the professional committed an illegal act, was negligent or provided services outside of the scope of those authorized by their professional body, the professional could be liable for damages, even if they were acting on behalf of the corporation.

Class Shares, Voting Rights and Control of the Corporation

Another reason to incorporate is to allow investors to invest in your company by buying shares while still maintaining control of the company.

You can accomplish this in various ways. Usually, you would have different classes of shares with different rights attached to each class. Some shares may have voting rights, while others may not.

It’s worth noting that setting up a corporation with different classes of shares can be complex. Therefore, you should seek professional advice to ensure that the class structure meets your business needs and complies with the law.

Dividends vs. salaries

You may wonder what the difference is between a dividend and taking a salary. Basically, a salary is a corporate expense, while a dividend is paid out of the corporation’s profits and is not tax deductible.

If you’re wondering which is right for you, the answer is that it depends. There are pros and cons to each depending on your situation.

The benefits of paying yourself a salary include receiving Employment Insurance and Canada Pension Plan benefits. Also, you can deduct the expense from the corporation’s income for tax purposes. Having a regular income will help you in such areas as applying for a mortgage and will allow you to build RRSP contribution room.  

On the other hand, the benefits of declaring dividends are that you will not have to pay Employment Insurance or Canada Pension Plan premiums on the money, and you can time those payments to lower your personal tax bill. Additionally, whether or not you have to pay employer health tax will depend on how much the corporation pays in wages. Declaring dividends may help you avoid crossing that threshold.

Overall, you are best to speak with your accountant to ensure that you are making the best decision for your particular situation.

Maintaining Your Corporate Records

Another area that requires your attention is keeping your minute book up to date. We have an entire article on that topic, but in short, you should keep the following documents in your minute book:

• share certificates;
• a copy of the articles of incorporation (and any amendments);
• any shareholder agreements and amendments;
• by-laws;
• minutes of shareholders’ and directors’ meetings; and
• any resolutions passed by the shareholders or directors

Since they are the legal basis for your corporation’s decisions, keeping your corporate records up to date is vital.

Manage your Corporation With Confidence

Taking your business to the next level can be exciting – but also overwhelming. As business owners ourselves, we know that making the decision to incorporate is just the first step.

There are a lot of moving parts to starting and maintaining an Ontario corporation, but you don’t have to go it alone. At Beeksma Law, we can help you every step of the way, from incorporating your business to maintaining your corporate records. We specifically love empowering small business owners to be able to confidently manage their own corporations.

Get in touch with us today to find out how we can help you.