A corporation (also called “company”) is a legal entity that has its own legal personality which is distinct from its owners (called shareholders) and the individuals who manage and run its affairs and business (called directors and officers). The creation of a corporation occurs following the proper filing of Articles of Incorporation (also called a Charter or Certificate of Incorporation) with the relevant government department or authority.
Every corporation is comprised of shareholders, directors and officers. Shareholders, as the name implies, are the ones who hold (i.e., own) the shares in the corporation. By reason of the votes that are usually attached to the shares, the shareholders control the corporation. If there is only one shareholder, that person has absolute control of the corporation. If the corporation has numerous shareholders, control of the corporation depends on who has a majority of the voting shares. However, the shareholders do not directly manage the corporation. They exercise their influence by electing and removing directors and approving or disapproving major corporate decisions.
One of the responsibilities of the shareholders is to elect the directors of the corporation, usually on an annual basis. Directors need not be shareholders of the corporation. The directors are responsible for supervising and administering the corporation’s affairs, and appointing the officers, who are in turn responsible for the day to day running of the corporation.
Steps to Forming a Corporation
1. Select the Name of the Company
You must select the name of the company; alternatively, you may opt for a numbered company
- To ensure the public is not confused or misled by similar corporate names, new corporate names must be approved by BC Registries and Online Services.
- The name must have 3 components. The first part of the name must start with a distinctive and unique word or phrase. This can be your name, a geographic location, an invented word or phrase or initials. The second part of the name is a descriptive element, useful in describing the name of the business. The last compenent is a corporate designation, such as Limited, Incorporated, Corporation, Ltd., Inc. or Corp.
- Alternatively, a British Columbia company may be assigned a number as its legal name (for example, 123456 British Columbia Inc.). This speeds up the incorporating process and permits immediate delivery of the Articles of Incorporation. The corporation may then register a trade name and be known to its customers as doing business (dba) under the trade name. Although the company must be identified by its actual name (i.e., the number followed by British Columbia Inc. or Ltd.) for all formal and legal matters and relations (e.g., contracts), the company may use its trade name for exterior signs, business cards, letterhead, etc.
2. Select a Registered Office
You must select a registered office for the company that is within British Columbia
- Upon incorporation of a company, it is important to ensure the corporate records are properly maintained. The British Columbia Business Corporations Act specifically requires that all companies prepare and maintain, their corporate records at their registered and records office. Open Door Law provides registered & record-keeping services, including, maintaining corporate minute books and records and the forwarding and filing annual reports and reminding companies of their annual meeting obligations, and preparing resolutions of directors and members.
- The registered & records office must be a physical address. Post office box numbers are not allowed. If you don't have a BC address, or don't want to use the BC address that you do have, we can act as registered office for the corporation.
3. Select Shareholders
You must select who will be the shareholders of the company
- Shareholders are the person(s) who hold (i.e., own) the shares in the company. Whoever holds the shares of a company essentially "owns" the company. By reason of the votes that are usually attached to the shares, the shareholders control the company.
- Every private company must have at least 1 shareholder and there may be several (but not more than 50) shareholders.
- There is no requirement for shareholders of BC companies to be BC or Canadian residents. However as of October 1, 2020 there are new shareholder transparency register requirements for private British Columbia incorporated corporations
4. Decide on the Authorized Share Structure
- The authorized share structure refers to the kinds, classes and speical rights and restrictions of shares that a company is authorized to issue. There must be at least one class of shares.
- A company may issue as few or as many shares as it deems desirable. The crucial matter is the proportion of shares that is initially issued to each shareholder, rather than the actual number. For example, if there are 2 shareholders and each is to have a 50% interest in the company, it is irrelevant whether each shareholder receives 10 shares or 10,000 shares each, since in either case, both receive an equal proportion of the shares.
- Nonetheless, it may be advantageous to issue a larger amount of shares. It may facilitate selling a portion of these shares at a later date since each share will have a lower value. Also, subsequent share issues from the company may be more attractive to investors since the value of the shares would be lower given the larger number of shares that were already issued.
- You should plan the share structure of the company to provide for future flexibility as well as your present needs. It is always best to consult a legal and tax advisor to choose the best kinds of shares, and ask your lawyer to draft the special rights and restrictions necessary.
5. Select Directors & Officers
- Directors administer the affairs of the company and make all major decisions for the company, having been elected or appointed to that position.
- Directors must be an individual, who are at least 18 years old, not found by a court to be incapable of managing the individual’s own affairs, not in a status of an undischarged bankrupt and not convicted of an offence in connection with the promotion, formation or management of a corporation or unincorporated business, or of an offence involving fraud.
- A resident of any country may be appointed as a director. A minimum of one director is required. No director, who is a resident of Canada is required. Directors may appoint officers and specify their duties. Any individual, including a director, may be appointed to any office position, including president, secretary and treasurer. Requirements to individuals appointed as officers are the same as to directors. One individual may hold 2 or more positions.
6. Decide on Fiscal Year-Ends
You must select the fiscal year-end of the company
- A fiscal year is any 12-month period used by a company as its official accounting period. A fiscal year-end is the official last day of the fiscal year of a company. The fiscal year-end does not need to be December 31, but is typically the last day of the chosen month.
- It is not uncommon for companies to select December 31 as their fiscal year-end. However, you may change this date if you have specific reasons for doing so.
7. Select Accountants
You may select the auditors or accountants of the corporation. If you do not, you may still incorporate
- Auditors are the professionals who check the accuracy, fairness and general acceptability of a corporation's accounting records and attests to them. A corporation must generally appoint an auditor to prepare the annual financial statements of the corporation. The auditor should be a chartered accountant and cannot be a director or officer of the corporation. Alternatively, you may appoint accountants to prepare the financial statements of the corporation but who will not act as auditors of the corporation.
- Shareholders of a private corporation may choose not to appoint an auditor for any given fiscal year. All the shareholders must agree to this decision. This decision remains valid only until the next annual meeting, where all the shareholders of the corporation must once again consent to not appointing an auditor for the following fiscal year.
Ready to start an incorporation?
Fill out our BC Incorporation Form to get started.