If you’re forming a company with a small group of shareholders, a private company can be a good option. Learn the legal issues and steps involved in incorporating a private company.
What you should know
You have options on how to structure a new business. You could use a sole proprietorship, form a partnership, or incorporate a company. For an explanation of the pros and cons of each approach, see our information on starting a small business.
Before incorporating, you may also want to get advice from a lawyer and an accountant. They can help you decide the best way to set up the company’s authorized share structure (called the capital structure, and explained below), and how to structure the company for optimal tax planning.
Under BC’s Business Corporations Act, there are public companies and private companies.
A public company has its shares listed and traded on a stock exchange and must follow securities laws.
A private company is typically a small company with very few shareholders (sometimes called a closed corporation). Its shares aren’t offered for sale to the public.
This information deals with private companies in BC.
You can use the BC Registry Services’ Corporate Online to incorporate a company. You can pay the fees by credit card.
Consider consulting a lawyer and accountant before incorporating a new BC company, as the standard articles (the set of rules that govern the company) and the authorized share structure provided through a basic online incorporation are simplistic and may not properly meet your needs.
You can incorporate a federal company under the Canada Business Corporations Act. A federally incorporated company has the right to carry on business anywhere in the country and will have its name protected across Canada. But a federal incorporation usually takes more time, and the corporation is often more expensive to operate than a BC company.
A private BC company can carry on business in other provinces if it registers itself extra-provincially in those provinces. But unlike a federally incorporated company, an extra-provincially registered BC company may have its application to register its name in another province refused by the Registrar of that other province.
Form the company
The name must end in “Limited”, “Ltd.”, “Inc.”, “Incorporated”, “Corp.” or “Corporation”, or the French equivalent to these words. Your new company name needs to be distinctive and have a descriptive element, or you can choose (or be assigned) a numbered BC company name. The Corporate Registry has more information on choosing a name.
If you decide to carry on business under a trade name (called a DBA or a doing-business-as name), you must still display the full legal name of your company on certain documents like contracts and invoices.
The shareholders own the company and vote to appoint the directors. The directors control and govern the company and oversee how it is run. They may appoint officers, such as a president, secretary and senior management. Typically, the officers handle the daily operations of the company and are overseen by the directors.
You can have a one-person company and be the sole shareholder, director and officer. In BC, unlike in other provinces, there is no requirement to have a BC resident director. There are other restrictions under the law on who can be a director of a BC company.
Consider carefully who the shareholders of your company should be. Even minority shareholders have considerable rights that can affect how a company is run. Shareholder disputes can be destructive. Removing an unhappy shareholder from a company can be very expensive, time-consuming and hard.
Sometimes, it is best if investors in a new company are just creditors who lend the company money, and not also owners. Or, you can see how a person works as an independent consultant before hiring them as an employee or making them a shareholder. You can see how they get along with the existing shareholders and how they will fit in the company in the long term.
There is no requirement for shareholders of BC companies to be BC or Canadian residents.
Part 5 of the Business Corporations Act deals with directors.
- A private company must have at least one director.
- A director doesn’t have to live in BC or Canada, but they do have to consent in writing to act as a director.
- A director must provide the Corporate Registry with an address where they can receive documents during standard business hours. If there’s no such office, then the Registry requires the director’s home address.
- A director must be at least 18 years old and cannot have certain criminal convictions, be a bankrupt person (who hasn’t yet been granted formal discharge from bankruptcy) or have been found by a court to be incapable of managing their own affairs.
A company must have a registered and records office. The registered office is where legal documents can be delivered to the company. The records office is the address where all records for the company are kept. The registered and records offices must be in British Columbia and may be at the same address.
Every company must also have both a mailing address and a delivery address for its registered and records offices. The registered office mailing address is where the company will receive its mail. The registered office delivery address is where the company is given any notices like legal documents. The registered office mailing address may be a post office box, but the registered office delivery address must be a street address accessible to the public during business hours.
The number of shares a company is authorized to issue to its shareholders is called the authorized share structure. This number can be limited or unlimited. You have to decide the type and number.
There are two main kinds of shares: par value shares and shares without par value. Par value shares have a minimum price they can be sold for. Shares without par value don’t have a minimum price. You can also have different classes of shares with different attributes and rights, such as common shares and preferred shares, voting rights, the right to receive dividends, plus different series of shares within a class of shares. The specifics can be complicated, so consider getting advice from a lawyer or accountant.
The documents needed to incorporate a company are:
- the incorporation agreement
- the incorporation application
- the articles
- the notice of articles
This is an agreement between the incorporator (or incorporators) and the company. It describes the number, kind and class of shares each incorporator agrees to take once the company is incorporated. The incorporator must agree to take at least one share of the company and therefore become the company’s first shareholder. The incorporation agreement must be signed by the incorporator before submitting the incorporation application to the Corporate Registry. You don’t submit the incorporation agreement itself to the Corporate Registry, but a signed original should be placed in the company’s records book.
The incorporation application is available from Corporate Online. The person who completes it is called the “completing party”. They must ensure the incorporation agreement and articles are properly prepared and signed by the incorporator.
The articles are the rules and regulations for your company. You can use the sample set in the regulation under the Business Corporations Act, or have articles specially drafted to suit your needs. The incorporator must sign the articles. You don’t need to submit them to the Corporate Registry, but you should file a copy in the company’s records book.
Notice of articles
This document has the following information:
- the company’s name
- the authorized share structure
- whether there are special rights and restrictions attached to the shares
- the addresses of the registered and records offices
- the names and residential or business addresses of the directors
You must e-file or electronically submit your incorporation application and attached notice of articles to the Corporate Registry, along with the prescribed fee, through Corporate Online. Your company will then be incorporated almost instantly.
After you e-file, the Corporate Registry will issue a certificate of incorporation and send you certified or true copies of the incorporation application and notice of articles.
This includes preparing the company’s records book, preparing director and shareholder resolutions, issuing shares, and preparing a directors’ register plus a “central securities register” or share register. You may wish to talk to a lawyer about this. Keeping a well-organized corporate record book and set of financial statements will help when you sell your company and if the Canada Revenue Agency (CRA) decides to audit your company.
To keep your company alive, it must file an annual report with the Corporate Registry each year within two months of its anniversary date of incorporation. Failure to file an annual report for two consecutive years will result in the company being struck off the registry and dissolved. You can restore a company but it’s costly to do so.
If the company changes its registered or records office, or if the directors resign or change their address, the company must e-file other forms with the Corporate Registry. There are fees for most of these filings. As well, each year, every BC company must choose to either appoint an auditor or waive the appointing of an auditor.