Corporate Law FAQs

Selecting the the right business structure in Ontario is a important choice - it determines the optimal structure entails choosing from common options like sole proprietorship, partnership, joint venture, and corporation. Key factors to assess include: tax implications, liability considerations, financing and investments, and organizational management.​

The most extensive business structure is a corporation. Owned by shareholders, it appoints a board of directors for management. As a distinct legal entity, personal liability for the corporation's debts is limited for its members.​

It involves essential research that every potential buyer or seller should conduct before finalizing a decision. This evaluation aids in assessing the business's feasibility. Inadequate or incorrect execution can lead to unforeseen challenges. Scrutinize aspects like the company's legal status, financial records, physical assets, intellectual property, licenses, permits, key personnel, and contractual obligations.​

The main benefit of incorporating your business is personal protection from unlimited losses. If your business loses money or is being sued, you, personally, do not have to be held liable. Your personal assets stay protected unless you decide to transfer them into your business. Other benefits include tax advantages, perpetual existence, and ease of raising capital through the sale of shares.

A joint venture is an agreement by two or more businesses to work together on a certain project, business, etc. From the legal perspective, a joint venture is a contractual arrangement, meaning that there is no need to file special forms with the appropriate government authorities. A simple joint venture agreement will in effect, create a joint venture. A partnership is formed when two or more persons agrees to carry on business together. A partnership agreement is a contract among all partners that sets rights, responsibilities and partnership terms/conditions of each partner.

Corporate by-laws are created for internal governance purposes of the organization whereas articles of incorporation are required by law to be filed in order to create a corporation. Although by-laws are also required by law, they are a not a public document. Articles of Incorporation have to be filed with a government registrar and be publicly available for review. Articles are also more difficult to change than by-laws. Therefore, it may be desirable to keep Articles filled to a minimum, while putting more provisions in the by-laws. Articles of Incorporation typically deal with fundamental aspects of the organization. They will usually include the name of the corporation, stipulations regarding the number of directors, address of the registered head office etc. The by-laws will typically deal with less permanent and less fundamental aspects of the corporation’s organization and are adopted at meetings of the directors and shareholders of the corporation.

A franchise is a business arrangement that allows the business owner to grant another person the right to carry out a specific set of commercial activities. It usually refers to a business model type where the owner contracts with another person to sell the products/services. The right to operate the owner’s business usually includes using that owner’s business logo, products, services, name, suppliers, etc. The owner usually gives this right in return for a fixed periodic payment.

Whoever wants to be a director of a corporation in Canada (or any province/territory) must be at least 18 years of age, be of sound mind, an individual and must not be a registered bankrupt. There are no legal requirements for a director to have any specific expertise. All the directors do not have to be residents of Canada, only 25% of the directors of a corporation must be Canadian residents. A director may only be removed by an ordinary resolution (majority) vote by shareholders (51 %+).

An employee is someone who is under the direct supervision and control of an employer whereas an independent contractor carries on business on their own account. Whether someone providing services is classified as an employee or an independent contractor can be important for a number of reasons. Employees are typically governed by employment legislation that requires payments (For example the Canadian Pension Plan). Employees will typically have more stringent requirements for termination as well (such as being given notice on termination). An employer typically has a great deal less responsibility for an independent contractor than an employee. There is no universal test to determine whether a person is an employee or an independent contractor. The key question to be asked is whether the person performing the services is doing so as a person in business on his or her own account. This can be determined based on factors such as the employer’s level of control over the worker’s activities, whether the worker provides his or her own equipment etc.

Dissolution is the process by which the corporation comes to an end or ceases to exist. A Certificate of Dissolution must be issued by Corporations Canada before a corporation can be considered dissolved. A corporation can be voluntarily dissolved. In Ontario, Form 10 can be used for voluntary dissolution of a business corporation where the dissolution has been authorized by the shareholders of the corporation. Form 11 may be used in Ontario for voluntary dissolution only where the corporation meets all of the following conditions: the corporation has not issued any shares, the corporation has not commenced business and all of the incorporators or their personal representatives have authorized the dissolution.

A limited liability company is one type of business entity that entrepreneurs can choose when they start their company. A limited liability company is a hybrid of a limited liability business and a partnership. It is not an incorporated business, but the owners are shielded from personal liability. At the same time, the owners can take advantage of favorable tax treatment that usually applies to partnerships. For example, for tax purposes the limited liability company will be treated as a partnership. An LLC should not be confused with a limited liability business which is another term for a corporation, it refers to the fact that the entrepreneur starting the business is shielded from personal liability when someone sues the corporation. Limited liability is often denoted by the abbreviation of “Ltd.”