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Incorporation Questions and Answers
What is a corporation?
A corporation is a separate legal entity that owns assets, holds debt, and operates a business similar to any individual. It is a separate legal entity having its own privileges and liabilities distinct from those of its members. It is important to realize that even though you may totally or jointly own the corporation as a shareholder, the corporate assets and liabilities are separate from your personal assets and liabilities.
Is the name of my corporation important?
Yes, all business of the corporation will be done under the corporation name. Your lawyer can assist you by searching provincial records to ensure that the name you want to use is available, and then registering the name for your use. Be sure to forward the full name of your corporation and all incorporation documents prepared by the lawyer to your accountant.
Is it important to work with a lawyer regarding my corporation?
Yes, your lawyer can assist you in setting up the corporation. It is very important that it is set up properly to ensure your corporation operates in the manner you want it to. You will likely continue using the services of a lawyer to maintain the corporation from year to year. Lawyer services include assistance with keeping the minute book of the corporation and filing the annual return to the Province of Saskatchewan. Please inform your accountant which lawyer you use, as there will be need to communicate between the accountant and the lawyer from time to time.
Does my corporation need to have a business number?
Your corporation will need to obtain a business number with Canada Revenue Agency. This number acts as the identity number with Canada Revenue Agency as it relates to Corporate tax, GST and Payroll. Once we have a copy of the Articles of Incorporation and Certificate of Incorporation we will register your corporation for a business number.
How do I transfer my farm or business into my corporation?
Canada Revenue Agency has special rules allowing you to sell your farm or business assets to your corporation at values that do not create tax to you personally. This process requires election forms be completed and forwarded to Canada Revenue Agency and legal agreements be prepared documenting the transfer. We require a complete list and values of assets and liabilities that you would like transferred into the corporation. We will advise your lawyer on the details of the agreements that need to be prepared.
Can I select a year end for my corporation other than December 31st?
Yes, you may select any year end for your corporation up to 365 days from your incorporation date. If you have a farming corporation, pick a year end after the production cycle for your operation is complete for the year. A crop farm usually picks a year ending of October, November, or December. This coincides with farm programs so that the production cycle occurs in the same year as your corporate year end. The alternative is that you may end up lagging one year behind with farm program payments. Non farming businesses typically look at a quieter time of the year for their year end or a time when inventory and accounts receivable are at their lowest.
Do I need a corporate bank account?
Yes, it is important to open a bank account in the name of the corporation as soon as possible. The bank will usually want the Certificate of Incorporation and Articles of Incorporation for their files to allow them to set up the bank account. It is very important to deposit all receipts that belong to the corporation and to pay all corporate expenses out of the corporate account. This is a clear cut way to differentiate between corporate transactions and your personal transactions.
How do I take money out of my corporation?
Once you have your corporation and have transferred your farm or business into it, you will want to be able to take funds out of the corporation for your personal use and enjoyment. It is very important to remember that personal use of corporate funds incurs personal tax.The three ways that a shareholder can take funds out of a corporation for their own use are: wages, dividends, or repayment of previously loaned funds (shareholder loan). It is very important to discuss with your accountant how to take money out of the corporation in the most tax effective way for your situation.
How do bookkeeping requirements change when I am incorporated?
There are more stringent filing requirements regarding the financial position of a corporation than there is for an individual. A corporation must file a balance sheet as well as an income statement with their tax return. For this reason it is imperative that a good set of double entry records be maintained. Some important tips to assist in making it easier to keep your books:
- Be sure all sales receipts and purchase receipts are made in the name of the corporation.
- Be sure to use your new GST number on invoices you make out, and to file your GST return under the corporate GST number
- All expenses that are for personal use only should be paid out of your personal bank account and not entered in the corporation books. If the expense has any business portion to is such as: power, heating, auto fuel & repairs, etc it should be paid out of the corporate bank account and entered into the corporations bookkeeping.
- Ideally you should have a charge card designated to business activities. This separates personal charges from corporate. It is best to have the card in the corporate name.
What are the tax filing requirements for my corporation?
Corporate tax is due 3 months after your year-end if the corporation is carrying on an active business. Arrears interest begins to be charged after this time, even though you have 6 months following the year end of the corporation to file the T2 corporate tax return.
Is there anything I need to do regarding advising Government Programs that my farm is now in a corporation?
Yes, there are special forms to be completed for AgriStability and AgriInvest to advise them of the change in your operation. It is wise to advise any program or agency that you deal with of the change.
What fees do I have to pay to set up a corporation?
- to set up your corporation
- to prepare the agreements to transfer your farm or business assets into the corporation.
- to calculate the values of the assets and liabilities being transferred into the corporation
- to advise the lawyer of the details to put in the transfer agreements.
- to file the election forms to Canada Revenue Agency allowing you to transfer your farm or business so that there is no tax resulting from the transfer.
You should speak with your lawyer and accountant regarding an estimate of the fees you could expect to pay to set up a corporation.