Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to incorporating your business, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with incorporating.  I should know – I’m one of them and you can contact me directly (michael@carabashlaw.com).

You’ve got a business.  Maybe it’s a sole proprietorship.  Perhaps it’s a partnership.  Maybe you’re simply an employee and you want to start your own business.  You’ve been giving some serious thought to incorporating.  What’s it all about?  What does it all mean?  How do you do it?  How do you maintain it?  What kinds of things should I know about?  These and other questions can be answered by a lawyer.  But until you meet with a lawyer, I thought I’d give you some tidbits of FREE legal information to help ease your curiosity:

First, a corporation is a separate legal entity.  This means that it is separate from its owners (shareholders) and managed by people who are also separate from the corporation (the directors, officers, and employees).

Second, a corporation must file is own taxes. If it’s in Ontario, then it must file a separate Ontario and federal tax return.  This is just part of the corporation being a separate legal entity.

Third, a corporation is a creature of statute.  A statute is what gives it its legal existence.  So it must comply with that statute and other statutes or face the consequences!

Fourth, a corporation can sue and can be sued.  If a corporation is sued and a judgment is rendered against it, its assets could be seized or sold as a result.   The assets of the shareholders of the corporation, however, are not generally exposed.  There are instances, however, when the corporate veil can be pierced or lifted, although they are generally uncommon.

Fifth, other entities such as corporations, partnerships, limited partnerships, etc. can be shareholders of a corporation.

Sixth, corporations take action through their officers, directors, and employees.  These individuals require authorization to act on the corporation’s behalf.  This is usually done through the By-laws and director resolutions.

Seventh, each actor in a corporation (i.e. director, officer, shareholder) has their own role, responsibilities, and obligations/duties.  You can read more on that topic here.

Eight, winding up a corporation is not straightforward: you need to update your internal structure (e.g. minute book), pay all owing taxes (so you’ll need authorization from the Canada Revenue Agency), and then file articles of dissolution.  This all takes time and money and you should engage a lawyer and an accountant.  Also, you can have an agreement between the corporate actors (e.g. shareholders) as to how they’re going to proceed to wind up the corporation and who’s going to be responsible for what.  This creates contractual rights which can be enforced (it’s way better than simply agreeing orally and then having a she-said he-said fight when things go awry!).

Remember: read my blogs on business law generally and corporations specifically if you want to know more about incorporating.  Also, you can make a post or contact me directly for a quote on how much it will cost to get a LAWYER to incorporate your business properly!

written by admin \\ tags: incorporate, incorporate canada, incorporate your business, limited liability corporation, toronto incorporation lawyer, unincorporated business

So what’s the difference between a shareholder, director, and officer in a limited liability corporation?  People often confuse directors and officers or believe that shareholders must also be a director and/or officer.  I’m going to spell it out here to dismiss all the confusion about these three parties by talking about their respective roles and responsibilities.

Shareholder
Shareholders own the corporation through their share ownership.  They have the right to attend and vote at meetings (assuming they have voting shares).  This often happens on an annual basis, but can happen sooner if they want to change the board of directors they elected.  Their role is that of hands-off manager: they delegate their decision-making powers to the board of directors they elect.  Shareholders aren’t totally out of the decision-making picture, however.  Shareholder must approve by-laws (i.e. power-giving documents which authorize corporate action) and vote on important matters concerning the corporation’s Articles of Incorporation (e.g. issuance of shares, new share class, restrictions on share transfers, restrictions on business, changing the corporation’s name, etc.).  But generally, shareholder do not participate int eh day-to0day operations unless they are also officers and/or directors.  However: there is no requirement that they be officers and/or directors.

Directors
Directors are elected by the shareholders.  The articles of incorporation specify the maximum and minimum number of directors there can be and the by-laws generally have provisions in place for things like director vacancies (e.g. by death, resignation, etc.).  Directors meet every so often to decide on long-term strategy and evaluate the progress of the corporation.  They themselves delegate decision-making on a daily or more routine basis to the officers of the corporation.  Directors are responsible for declaring and paying out dividends to shareholders and get involved in important corporate matters.

Officer
Officers are those individuals who manage the day to day affairs of the corporation.  They have titles like CEO, President, Treasurer, Vice-President, CFO, Secretary, etc. but these are just titles and there’s no formal requirement that they have a particular title.  The duties and responsibilities of the officers are generally spelled out in the corporate by-laws and more specifically spelled out in an employment contract.

written by admin \\ tags: articles of incorporation, board of directors, corporate matters, corporation directors, limited liability corporation, roles and responsibilities, shareholder, shareholders