The information below is not legal advice and different steps or requirements may be necessary according to your specific situation. It is highly recommended that you speak with a lawyer if you are thinking about or are starting a business.
STEP 1: CHOOSE A FORM OF BUSINESS
The first step when starting a business is to choose a form of business. Each form of business has different succession rules, as well as specific tax and liability consequences. Speak to a lawyer about what form of business would be best for you. The three main forms of business are:
(a) Sole Proprietorship: A sole proprietorship is a form of business where there is a single owner. The sole owner is fully responsible for the debts, contractual obligations and liabilities. For example, creditors can claim the business owner’s personal assets. Profits are taxed as personal income, not business income. It is best to consult a tax lawyer or accountant for all possible tax implications.
(b) Partnership: This form of business is governed by Alberta’s Partnership Act, common law and the partnership agreement. A partnership is defined in the Alberta Partnership Act as “a relationship that subsists between persons carrying on a business in common with a view to profit”. It can be created by an agreement, oral or written, or even by the conduct of the parties. The Partnership Act has default profit sharing and management schemes, but partners can agree to other arrangements. However, partners are unable to contract out of liabilities owed to third parties. There are different types of partnerships, including:
- General Partnership: All partners manage the business and can be held personally liable for their own and their partners debts, contractual obligations, and liabilities.
- Limited Partnership: There must be one or more general partners, and one or more limited partners. General partners manage the business and accept unlimited liability. Limited partners only contribute capital and are liable for debts up to the amount they have agreed to contribute.
- Limited Liability Partnership: This form is limited to professionals, such as doctors, accountants and lawyers. The partners are responsible for their own debts and obligations, and any negligence or wrongful acts committed. All are responsible for the ordinary debts of the partnership.
(c) Corporation: A corporation is a separate legal entity from its shareholders and is considered a person under the law. The shareholders have limited liability and are not held personally liable for the corporation’s debts, obligations and acts except in exceptional cases. In a corporation, ownership is transferable, and business operations can continue without the original owner. Corporations must file their taxes annually separate from their owners. Also, incorporation documents are made public.
STEP 2: CHOOSE THE JURISDICTION
Corporations are also required to file an annual return, in addition to filing corporate taxes.Sole proprietorships and partnerships are governed by provincial law. Corporations can be governed by either federal or provincial law. There are differences in the rules you must follow based on whether you choose to register your corporation under federal or provincial law. These rules relate to the location of the head office, where you can do business, what name you can choose for your business, how to protect your business’ name, and annual filings and costs. A lawyer can help you determine whether it’s best for you to incorporate federally or provincially.
STEP 3: CHOSE A BUSINESS NAME
Sole Proprietorships and Partnerships
A business’ trade name is simply the name used in the course of business. It does not create a separate legal entity. However, it is still important to choose a unique name: you can be taken to court by an existing business with a similar trade name. The words incorporated, limited or corporation or their abbreviations cannot be used at the end; Limited Liability Partnership or its abbreviation LLP must be used at the end for limited liability partnerships. The sole proprietorship typically carries the name of the business owner and requires no further steps. If a different name is chosen for the sole proprietorship, see further requirements under step four. Partnerships do require a trade name. Thus, it is recommended that sole proprietorships and partnerships obtain a NUANS (Newly Upgrade Automated Name Search) Report which contains registered businesses, trademarks, and corporations with similar names.
A corporation is a separate legal entity from its shareholders and is considered a person under the law. The name of an Albertan corporation has three elements: distinctive, descriptive, and legal. ‘Distinctive’ is the unique word(s) of the business name. ‘Descriptive’ is what the business is or does. In addition, according to Service Alberta, “[a]ll Alberta corporations are all required to have a legal element at the end of the name”. Examples include Limited, LTD, Corporation, Corp., etc. The legal element puts the clients on notice that it is a limited liability business. This notice is crucial to avoid being personally held liable for debts and obligations. The number assigned by the Alberta Corporate Registry can be used as the name, for which ‘Alberta’ always forms the second part and with a legal element at the end (e.g. 1234567 Alberta Ltd.). Unless the corporate number is chosen as the name, a NUANS report must be purchased and examined for any identical or similar names to the corporation. This is required for federal incorporation as well.
Step 4: REGISTER THE BUSINESS AND THE BUSINESS NAME
Sole Proprietorships and Partnerships
A sole proprietorship with a name other than the owner’s name has to be registered with the province. Otherwise, if it carries the name of the owner, it does not have to be registered. The Declaration of Trade Name form has to be completed. All partnerships have to be registered with the Corporate Registry service provider. A required form for a general partnership is Declaration of Partnership. The forms, for both the sole proprietorship and partnerships, have to be filed with the Registry service provider. The business name information, business name report, valid ID and fee payment will be required at the Registry.
Registering a corporation requires several forms. Both the federal and provincial corporations require Articles of Incorporation which includes and the signature of the incorporator authorized signing authority. Federal corporations must submit an Initial Registered Office and First Board of Directors form with the Articles of Incorporation. In Alberta, the following documents must be submitted in Alberta with the Articles of Incorporation:
- a Notice of Address to identify where the corporate documents will be kept and where the corporation can be served with court documents;
- a Notice of Directors which includes the name of the initial director(s) and their addresses;
- and a NUANS report to make sure the corporation trade name is not similar to another.
To incorporate in Alberta, these documents and a fee must be presented to an authorized service provider. If the information qualifies under the Business Corporations Act (Alberta), it will be entered into the system.
A federal corporation can be created online through the Online Filing Centre or by submitting the required documents, including Articles of Incorporation and information about proposed directors, by fax, email or mail to Corporations Canada along with the required fee. Corporations Canada may request more information to ensure that the application meets the incorporation requirements under the Canada Business Corporations Act.
Additionally, an extra-provincial corporation or out-of-province corporation, including federal corporations, must register in Alberta, if it plans to do business in Alberta. Service Alberta defines a corporation as conducting business in Alberta if it is a corporation:
- that solicits business in Alberta;
- whose name, or any name under which it carries on business, is listed in an Alberta telephone directory or appears in any advertisement with an Alberta address;
- that has a resident agent, representative, warehouse, office or place of business in Alberta;
- that is licensed or registered, or required to be licensed or registered, under any Act of Alberta allowing it to carry on business;
- that owns land in Alberta.
A partnership is defined in the Alberta Partnership Act as “a relationship that subsists between persons carrying on a business in common with a view to profit”.To register an extra-provincial corporation in Alberta, the corporation must provide a government fee, a service fee, an Alberta NUANS report, and a notice of attorney. For the notice of attorney, you must choose a person, your attorney, who will accept the legal documents at an address in the province. The attorney does not have to be a lawyer. You will also need to submit a statement of registration, notice of assumed name, and incorporation documents certified by company official, notary public or a government official. These must be taken to an authorized Alberta service provider. For a complete list of formation documents visit the Service Alberta website. Once the extra-provincial corporation is registered in Alberta, a Certificate of Registration will be provided.
There is an easier route if the company is incorporated in British Columbia, Manitoba, or Saskatchewan. The New West Partnership Trade Agreement allows a simpler process for registration. The registry offices in the home jurisdictions can provide more information.
ADDITIONAL REQUIREMENTS FOR CORPORATIONS:
After the issuance of the Certificate of Incorporation, the directors and the shareholders will hold meetings. The directors will select officers, adopt the form of the shares, issue the shares and pass by-laws which will govern the internal workings of the corporation and address the specifics of their own meetings. The shareholders will then hold a meeting to approve the by-laws, select an auditor and elect the directors. Corporations are also required to file an annual return, in addition to filing corporate taxes. They are also required to file notices of any important changes, such as changes to the directors, shareholders or the address of the office where the records are kept. The records that a corporation is required to maintain are listed under s. 21 of the Alberta’s Business Corporations Act for provincial corporations and s. 20 under the Canada Business Corporations Act for federal corporations. These records are kept in the corporation’s minute book.
ADDITIONAL REQUIREMENTS: LICENSING, INSURANCE, REGULATIONS AND BY-LAWS
Depending on the type of business, there may be additional municipal and provincial licensing requirements, insurance obligations, and other regulations and by-laws that you may have to comply with. Again, it is recommend that you speak to a lawyer to make sure you fulfill all the legal requirements when starting a business.