5 Decisions You Have to Make Before You Incorporate in Canada
If you've decided to incorporate your business, there are five decisions you need to make before you start the process: federal or provincial incorporation, named or numbered corporation, your corporate name, your share structure, and your fiscal year end. Getting these right from the start can save you significant time, money, and headaches later.
Each decision depends on your specific situation, but taking the time to think through all five before you incorporate is far better than trying to fix them after the fact.
(And if you've already made the decision to incorporate, my free Newly Incorporated Guide covers the setup steps in detail.)
I also cover these five decisions in this video and podcast episode if you'd rather watch or listen.
1. Federal or Provincial Incorporation
The case for provincial incorporation is simplicity. You register in the province where your business is located, through that province's registrar (Quebec's Registraire des entreprises, Ontario's Business Registry, and so on).
A federal corporation costs a fixed fee of about $200, but you still need to register a provincial office alongside it, since a federal corporation requires you to also be registered provincially wherever you operate. Federal incorporation gives you a degree of name protection across the country (though not as strong as a trademark) and makes sense if you plan to sell your products or services across Canada or internationally. The tradeoff is more administrative requirements: a federal annual return and potentially more filing fees. In Quebec specifically, federal incorporation costs more because you pay both the federal fee and the Quebec registration fee.
If you're operating locally, provincial incorporation is usually sufficient. If you plan to operate across Canada and want some name protection, federal incorporation is generally the better choice.
2. Named or Numbered Corporation
By default, your corporation is assigned a number. The alternative is to choose a name.
For a federal corporation, you'll need to run a NUANS search to confirm the name is available (in Quebec, you will also need to choose a French that is equivalent to the English name). Once approved, you register the name federally and then provincially.
If you register provincially, you will have to perform a similar name search process within your province.
A numbered corporation makes sense if the name itself isn't important to your business, for example if your clients don't care what your entity is called.
However, if you do have a name in mind, it's easier to secure it at incorporation than to change it later, though a name change is possible afterward.
You can also register more than one name for your corporation (a "doing business as" or DBA), which is useful if you sell different products or operate under separate divisions. There are usually additional fees for each name search.
3. Choosing Your Corporate Name
If you go the named-corporation route, there are some basic requirements. Federally, your name needs a suffix like "Inc." or "Ltd." to indicate that it's a corporation. Some corporations might simply use the owner's first and last name plus "Inc.," which is perfectly fine. If you want a name that represents your brand, you will need to run a name search to confirm it is available before you can register it.
Keep in mind that name protection through incorporation is not the same as a trademark. A trademark offers much stronger protection, but most corporations operate without one, using their federally or provincially assigned name without issue.
4. Ownership and Share Structure
The simplest structure is a single owner who holds 100% of the shares and serves as president, sole director, and signing officer.
Many corporations, however, have two or more owners, whether that's a spouse, a business partner, or several shareholders.
If you have more than one owner, I strongly recommend drafting a shareholder agreement, even the corporation is owned by you and your spouse. Putting ownership terms in writing now can help avoid ambiguity and disputes later.
The simplest share structure is for each owner to hold an equal portion of common (or Class A) shares. If you and a partner own the corporation 50/50, you'd each hold 50 shares of 100 total, for example, at $1 each. This works fine until you want to pay dividends differently than your ownership split. Dividends are typically allocated based on share ownership, so with a single share class, a 50/50 split means dividends must also be split 50/50.
If you anticipate wanting flexibility in how dividends are paid out, setting up additional share classes at the time of incorporation is much easier than restructuring later, which can require a fair market valuation of the corporation. It’s important to think about whether additional share classes make sense for your situation before you incorporate , even if you don't use them right away since changing them in the future can be a difficult and often costly process.
5. Choosing Your Fiscal Year End
Unlike a sole proprietorship, which almost always has a December 31 year end, a corporation can choose any date, as long as it falls within 53 weeks of the incorporation date. Choosing a year end that is close to a full year after your incorporation date also extends your first corporation tax return. This means lower accounting fees in your first year since you will be paying for the year end tax preparation, later.
Note that it is common practice to have a year end that is on the last day of the month. So if your incorporation date is April 14th, you could choose a year end of March 31st.
Most new corporations default to a December 31 year end since it aligns with personal tax filing and feels simpler. But there are reasons that you might want to choose a different date:
Accountant availability.
December 31 year ends mean your corporate filing deadline, which is six months after the year end, is due between January and June. This is when most accountants are busiest and might not be able to give you their full attention. A different year end can mean a more relaxed accountant who is better to answer your questions and meet deadlines (although corporations have other obligations and deadlines that will likely still fall within busy season).
Seasonality.
If your business has a clear high and low season, then choosing a year end during your slow season captures your full sales cycle in one fiscal year and gives you time to prepare your books without rushing. A simple example of this would be a snow removal company which is busy November through April. It would make sense for them to choose a June 30th year end. It’s worth evaluating your business and setting a year end on this basis.
Changing your year end later is possible but involves filing a short stub-year corporate tax return, which adds cost and administrative work. It's much easier to choose deliberately at the outset.
Once you've made these decisions, check out my article on the next steps after incorporation for what to do once you're set up.
Frequently Asked Questions
Should I incorporate federally or provincially?
If you operate only in your home province, provincial incorporation is usually sufficient. If you plan to operate across Canada or want broader name protection, federal incorporation is the better fit.
Do I need a corporate name, or can I use a numbered corporation?
A numbered corporation is fine if your business name isn't important to your clients. If branding matters to you, it's easier to secure your name at incorporation than to change it later.
Can I change my corporation's fiscal year end later?
Yes, but it requires filing a short stub-year tax return, which adds cost and paperwork. It's better to choose carefully at the start.
Do I need a shareholder agreement if my only co-owner is my spouse?
Yes. A shareholder agreement is recommended regardless of who your co-owners are, to avoid disputes if circumstances change.
Final Thoughts
When you plan to incorporate, it is not always clear that certain decisions have to be made. Being prepared in advance is the best way to ensure that you don’t make these decisions in a rush which results in a less than optimal corporate set up and potentially higher costs down the road.
Looking for resources to help you with your incorporation journey?
If you've decided to incorporated, download my free Newly Incorporated Guide which covers what you need to do right after incorporating.
Or sign up to my biweekly newsletter where I help you makes sense of your small business finances: montrealfinancial.ca/newsletter
