Most small business owners do not need to memorize the legal mechanics of incorporation. They do need to understand the choices being made on their behalf, because those choices affect tax planning for as long as the corporation runs. Use this as a checklist, and call us before you sign anything.

1. Pick a name

The name can be almost anything as long as it is not already in use. An invented word, the founders’ initials, or a compound of family names all work. The further from common dictionary words, the less likely you collide with an existing registration.

2. Create the corporation

We strongly recommend doing this with a lawyer experienced in small-business incorporations. Their fee is usually money well spent. In Alberta, incorporation is filed through a registry agent.

Make sure the corporation is created with several classes of common and preferred shares. The structure we typically recommend authorizes:

• Unlimited Class A common, voting
• Unlimited Class B common, voting
• Unlimited Class C common, non-voting
• Unlimited Class D common, non-voting
• Unlimited Class A preferred, voting, redeemable, retractable
• Unlimited Class B preferred, voting, redeemable, retractable
• Unlimited Class C preferred, non-voting, redeemable, retractable
• Unlimited Class D preferred, non-voting, redeemable, retractable

At least one preferred class should have a price-adjustment clause so it can match a value later assessed by CRA. We also recommend issuing each share at $1, and making at least one preferred class participating.

3. Have us review the articles

Before the articles go to the registry, send them to us. Reviewing the share structure for tax-planning flexibility is one of the most cost-effective steps in the whole process. A small change to the articles up front can save years of restructuring later.

4. Open a bank account

This step is non-negotiable. Business and personal funds have to be kept separate, both for clean books and for liability protection. Take a copy of the certificate of incorporation to the bank when you open the account.

5. Issue shares

We typically recommend each shareholder deposit $60 for 60 common shares, with each shareholder getting a different class so future tax planning has room to work. The cheque or transfer for each shareholder’s shares should come from that shareholder’s personal account.

6. Get a GST number

Make the GST registration effective from the date of incorporation. That is allowed as long as you register within 30 days of incorporation. Call CRA at 1-800-959-5525 or apply online through CRA: Register for GST/HST.

7. Get a payroll number (if you will pay wages)

A payroll program account is needed before you can issue your first paycheque. Same number to call: 1-800-959-5525. CRA can also mail you the remittance forms.

8. Set up bookkeeping

Corporations require more rigorous bookkeeping than proprietorships. Decide on the system before transactions start happening. Common options:

1. Cloud accounting (QuickBooks Online, Xero)
2. Desktop accounting (Sage 50, QuickBooks Desktop)
3. Spreadsheet bookkeeping (works for very small operations)
4. Outsource your bookkeeping to us

Whichever path you pick, plan for monthly reconciliation against bank and credit card statements. Falling behind on reconciliation is the single most expensive bookkeeping mistake we see.

9. Pick a fiscal year-end

Corporations can elect any fiscal year-end. The right choice depends on the seasonality of your revenue, your existing personal tax situation, and your planned remuneration mix. We discuss this with every new corporate client before we sign off on the year-end.

10. Make money

Not strictly required for the legal incorporation. Highly recommended for everything that comes after.

What to think about once the corporation is up

The setup is the easy part. Running it well takes ongoing decisions:

• How much to draw, and what mix of wages versus dividends.
• Who should own which class of shares (you, a spouse, family).
• Which expenses are deductible, and how to substantiate them.
• How to plan around the small business deduction limit.
• When to elect into or out of GST quick-method reporting.

We work through each of these with corporate clients on a recurring basis, because the right answer changes as your business grows.