So, you’re ready to take the next big step in your business and incorporate – congratulations! The next big decision is who will do the incorporation for you? Most companies are incorporated by individuals following the guidance of the government website, individuals paying for an online service, accountants, notaries or lawyers.
The actual incorporation/registration of a company is relatively fast and straightforward and can be done by anyone, anywhere at any time. However, unless you are well versed on the applicable Business Corporations Act (BC, Alberta, Federal, etc.) and applicable regulations, you would have no way of knowing the supplemental documents that need to be prepared to ensure that the company is in compliance with the applicable Act upon incorporation and annually. Familiarity with the applicable laws, regulations and bylaws is especially important in the context of “professional” corporations which are also governed by administrative bodies/colleges (Ex. realtors, doctors, etc.) which have their own set of additional rules, regulations and/or bylaws.
We have seen the good, the bad and the ugly when it comes to do-it-yourself incorporations. Some of the most common issues that we see and are hired to correct include:
- Share structure not being suitable for the company’s needs/goals
- No shares issued
- No director consents
- No supplemental incorporation and organization resolutions
- No annual resolutions
These may seem like relatively minor issues, but they can be extremely expensive to fix – especially years down the road. The cost of having a lawyer rectify outstanding deficiencies to “clean-up” a company can (and often do) far exceed the cost of retaining a lawyer to assist with the initial incorporation.
There are monetary penalties under the applicable legislation for failing to comply with all of the applicable laws and regulations. However, there are many practical consequences that cause problems for business owners with non-compliant DIY corporations. For example:
- Unfavourable tax consequences
- Delays or inability to enter into contracts with third parties
- Delays or inability to obtain financing
- Delays or inability to sell the business
While the upfront cost of DIY incorporating is cheaper, obtaining the proper legal and accounting advice in advance can save a lot of time, energy and money in the long run.
If you have any questions regarding the above, the incorporation process, the steps necessary to “clean-up” your DIY incorporation, or business law in general, please do not hesitate to reach out to our office at (778) 940-3768.
Author: Danielle (Dani) Brito
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (778) 940-3768 or any of our lawyers practicing in the area of business law at the following:
Danielle (Dani) Brito: [email protected]
Jennette Vopicka: [email protected]