I've been officially in business for 6+ years as a one man shop. That is about to change though. The workload has gotten to a point where I can't keep up. So it is time for me to "do things right" and hire full time staff. So after doing some research, here's what I've learned...
If I'm hiring someone, I need to change my business structure. 6+ years ago, I decided that if I'm a one man shop, I'm comfortable with the liability risks that may be involved. So I opted at the time to stick it out as a sole proprietor. With the idea of taking on staff now, my reasoning no longer applies and I really should "cover my ass" correctly. So it is time to incorporate. The process has changed slightly since I last looked at it, and I needed to do some research into what possible "share structures" would be reasonable. I also looked at the difference between Federal and Provincial incorporation. At the moment, it would appear that to incorporate federally, you get the luxury of paying twice the usual fee. But it sort of makes sense.
Here's the tally:
Incorporating in Alberta: approx $240
Incorporating federally: approx $250 PLUS $240 to register in Alberta.
So, based on that, I'm sticking it out as an Alberta company for now. Partly because I'm a cheap bastard, and partly because the benefits of being a federal company don't apply to me just yet.
Ok, so here is the basic process to creating an incorporated company.
- Start with some basic research into what a cororation is, and what the various terms mean. I suggest starting with Guide to Federal Incorporation. The details in here are applicable to just about all corporations - not just federal companies.
- Get the required forms - http://www.servicealberta.ca/841.cfm (assuming you are incorporating in Alberta). You specifically need to start with the Articles of Incorporation form.
- Decide on a business name. Or if you will be using a numbered company. http://www.servicealberta.ca/730.cfm. One note: It turns out that *current* prices for named versus numbered companies is roughly the same. In the past a named company was about $200 more than a numbered company.
- Get a NUANS report for your name (not needed if you are doing a numbered company). This is done by going to a registry office and paying approx $50. You should choose 1 or two alternate names to help avoid multiple NUANS reports. Don't forget your good friend Google - this is a great tool to see how feasible your considered name is. And you can make use of CIRA or a WHOIS name search to see if the domain name that might be associated with your desired name is in use. Don't forget to consider different top level domains (i.e. .com, .ca, .net, .org, etc.). A NUANS report is only good for 90 days. So plan accordingly.
- Pick a share structure. This is the part that you should *really* talk to a lawyer about - especially if there is more than one person involved. To do this right, you need to understand that a) share structures are arbitrary, and b) but they define the rules for interacting with the company. Every company will have at least one Director, Officer, and Shareholder - sometimes in the form of one person. Your share structure defines who can vote on the direction of the company, any succession routines (i.e. if you die, do your kids get your shares?), etc. This is the nitty-gritty part the lawyers will be especially helpful with. For one man shops, or single owner companies, this can be very simple - you issue a single "Class A" share to yourself to impart ownership and voting rights. You'll see the phrases "Sole Director, Sole Officer, and Sole Shareholder" used in these cases.
- Fill out the Articles of Incorporation form.
- Visit your registry with all the paperwork (forms, NUANS report, etc.) and pay the fee to register. I recommend photocopying all the documents before this, just to ensure you have a record.
- Assuming everything is OK, and Corporate Registries rubber stamp your registration, you'll receive a letter from them indicating your business number and you are now officially in business. But you are not done yet.
- After the registration is done, you need to call a Shareholder's meeting to elect your directors, define and approve your bylaws (i.e. just how DO you elect a director, is simple majority enough?, etc.). At this meeting you do the housekeeping work that defines how the business will be run. This is usally just a formality because you had plenty of opportunity to think or deal with these points when you were registering.
- Now you need to tell the Corporate Registry about these "resolutions". You do that by filling out the appropriate form (http://www.servicealberta.ca/841.cfm) and sending it off to them. Feel free to call them if you are not clear on the process or need to clarify a point. I've found they are generally very helpful and friendly.
- Finally, keep a binder, folder, or simple pile of paper with elastic band of all your offical paperwork. This is collectively known as the Corporate Minutes, and may contain more than just the governement forms. For instance your current by-laws should be part of the collection. Any shareholder resolutions should also be in there. The government or lending companies may ask to see your corporate minutes to verify things are on the up and up. You do not need to include your accounting records, but you should include periodic financial statements.
** NOTE: This should not be considered legal advice, or even advice at all. This is just my own observations, shared because I know people often do not understand the process.
The only other point I would suggest is to look into licensing. There are tools online like BizPal that will help you determine what licenses you need. Or you can call City Hall directly.
If you made it through all those steps, then you know as much as I do, and really I should not be telling you how to run your own business. But I do wish you luck! Oh, and I'm open to sharing knowledge in these areas - send me an email.
Update 10 Jan 2011: An old friend contacted me today to indicate that one does not NEED to incorporate. A sole proprietor can hire staff and do most everything an incorporation does just fine. The only real difference is when it comes to taxes - you pay less taxes with an incorporation, but may actually pay out more cash in way of professional fees and effort than a sole proprietor would. Another factor to consider. Thanks Ray!