Incorporating a Small Business

When incorporating a small business in any country, state, province or other jurisdiction there will be a special procedure in that jurisdiction.

The basic principles of incorporating a small business are choosing a name, obtaining a name search, filling out articles of incorporation or a memorandum of association, notice of directors and notice of registered office.  You should also set up a minute book for the company which involves organizing the company subsequent to the incorporation.

Great consideration should be given to the name that you choose when incorporating a small business. You must ensure this name is not similar, does not sound the same as or is remotely the same as any other corporation, business name, sole proprietorship, partnership or trade-mark registered in that country, state or province as the case may be. It is not enough that the name is available. It can still be considered a conflict. Some governments will accept a name that is only different than others already registered which may not be enough to determine whether the name could be a conflict in the future. If it turns out to be a conflict you may be forced to change the name which will be very costly regardless of the fact that your government allowed you to incorporate the name. Using a qualified search house to assist you with obtaining your name search report will cut down the chance of this happening since they are trained. You need to check with the jurisdiction in which you wish to incorporate and see if they have guidelines that can be followed. In Canada for instance it is best to have a search house assist you since they are trained to know which names would be a conflict. Sometimes even if a name sounds the same it could be a conflict, such as using the words "1st" or "First".

You will be required to provide a Name Search Report when incorporating a small business. You should obtain your name search in advance since if you register online or in person, you will be required to provide the report number or a copy of the report as the case may be before you will be able to incorporate.

If you do not wish to go through the procedure of obtaining an alpha name for your company you can register a numbered company in most jurisdictions. In Canada for instance you can register a company with names such as 2019977 Ontario Inc., 2019977 Alberta Ltd., or even 2019977 Canada Inc. Many people when incorporating a small business will register a numbered company and then register a business name against the company, i.e. 2019977 Canada Inc. c/o as John's Hardware Store.

Each government will have its own form of articles of incorporation or memorandum of association. Each government has a section on its website which outlines the requirements for incorporation and the forms to be completed. In most cases you can download these forms, fill them in and print them off. Frequently additional forms are required to be completed as well including a Notice of Directors and/or a Notice of Registered Office either at the time of incorporation or within so many days after incorporation. When you register online the government will request the registration number associated with the name search report you ordered.

Some governments will allow you when incorporating a small business  to register a company with articles of incorporation that are not correct. The governments look for specific information to be contained in the articles. When incorporating a small business you could still be filing deficient articles and later on you may have to amend them when a government agency or another matter comes to light. It is a good idea to either hire a solicitor to register your business or buy some type of incorporation kit to assist you. It's not difficult. You just need to understand the clauses that should be contained in the articles for them to be complete.

An example of where someone could go wrong is when they are incorporating a small business and they provide for only one director on the articles. In some jurisdictions you must show a floating board of say 1 to 10 in order to change the number of directors easily and if you do not do so and you want to bring on another director later on then you will need to amend the articles and this can be costly. Again, it is a simple change but if you do not know the fine details then you will make a mistake which could cost you in the future.

When incorporating a small business you will be required to provide the name of the company, the registered office address (which is the address where government mail can be sent), the names of the directors and their addresses (these must be physical addresses where the directors can be located in person), the nature of business (which should in most cases be left blank to enable any business to be carried on), the share attributes (which in most cases would be an unlimited number of common shares), the attributes for the shares (which in most cases can be not applicable if only one class of shares is shown), the transfer restrictions (which should be upon approval of the directors and shareholders) and the special provisions (which provide that shares cannot be sold to the public and the number of shareholders will be less than 50).

Incorporations are governed by the business corporation statutes in the various jurisdictions. For instance in Ontario, Canada it is called the Business Corporations Act. In Ontario Section 105 of the statute provides that a director of a corporation (a) must be at least 18, (b) of sound mind, and (c) a person, (d) not bankrupt. Each jurisdiction will have similar requirements for someone to be a director of a company.

As soon as you have incorporated, you must then set up your minute book.  This is the part that many small business owners do not bother to do and it is very important. Once you are incorporated you will need to appoint the officers, approve the form of share certificate, allot the shares to the shareholder and the shareholder has to pay for the shares, and elect the permanent directors. If you do not do this and you are the owner of the company and something happens to you, there will be no record of you being the shareholder and therefore the ownership of the company comes into question. As well, if you decide to sell your company down the road and you have no minute book, then you will have to pay to have one set up before you can sell and this will be much more costly than if you had done it in the first place. Your minute book can be a binder rather than an expensive minute book.

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