A corporation is a legally established business that can own assets and incur debt. It represents one of three ways of organizing a business in Canada: The other two are sole proprietorship and general partnership. Each has its own operational, accounting, tax and legal requirements.

In Canada, a corporation is created when one or more entrepreneurs register a business with a provincial or federal government through articles of incorporation—documents that describe the type of business being created, its officers, directors and bylaws. This process can be complex and should be done with the advice of an accountant and a corporate lawyer.

Corporations are considered legally separate from their owners. Because it is defined by law, a corporation is an impersonal entity that can in theory exist forever. This means that if the owner dies, the company can continue without issue—unlike in partnerships or sole proprietorships where company assets can be tied up because of estate or taxation issues.

More about corporations

The features of a publicly traded corporation with broad-based ownership are as follows:

Features Pros and cons
Multiple owners whose ownership percentage is determined by how many shares they hold. There is typically lots of structure and formality in a publicly traded corporation, along with high administration costs.

Shared decision-making under the guidance of a board can hamper flexibility but it increases accountability and a company’s ability to raise capital.
Revenues, expenses and cash flow management are all tracked internally by professionals, with additional professional support from outside.

Publicly traded corporations must report their results publicly through audited financial statements and detailed disclosures.
Subject to progressive tax rates (the tax rate goes up as income increases) established by federal, provincial and municipal authorities.

One advantage of corporations is that they have few limits on the expenses they can deduct for taxation purposes. They pay tax on earnings before tax at established rates. Net income that is distributed to owners is then taxed again at their personal rates.
Owners’ liability is limited to their investment. Capital can be raised without exposing owners to unlimited liability.

Limited liability is an advantage. If the company is sued, the owners’ personal assets cannot be seized to settle the claims.