Despite what the internet may tell you, setting up a corporation yourself is not as good, or as simple, of an idea as you may think. We see it all the time, people fill out an online form, hit submit, and relish the simplicity of the process. Well, we are here to tell you that its not as simple as it appears.
For starters, those that self-incorporate often only create one class of shares to issue shares from to the corporation’s shareholders, rather than separate classes. This means that if one shareholder decides to declare a dividend, everyone in that class must also receive the dividend. This leaves little room for flexibility, especially when shareholders may have different tax plans. Further, these different share classes can rank equally or otherwise, depending on the objectives and contributions of the shareholders. There really is a lot we can do when setting up a corporation. This is just the tip of the iceberg when it comes to oversights by those going it alone when incorporating.
Another common mistake for those that self-incorporate is that they don’t organize a corporate minute book. A “minute book” is a corporate record of the corporation, often organized in a special binder, consisting of Articles of Incorporation, bylaws, shareholders agreements, share registers, directors’ registers, officers’ registers, and corporate resolutions. While minute books are a legislative requirement, they are often either not created or kept up to date with annual resolutions.
We often have clients come to us to amend their Articles or organize their minute books when they are looking to take on an investor or sell the corporation. Properly organizing your corporation is ultimately inevitable, whether you do it now or two decades down the road when you are required to do so by a potential purchaser. Save yourself the hassle and stress in the future and let us keep your corporation up to date for you.
Robin K. Mann, Associate Lawyer