Can an Entertainment Business Incorporate?
Do you ever wonder how to incorporate your entertainment business? Most businesses reach a point when they consider whether to incorporate. This decision on whether or not to incorporate is no different in the entertainment industry. Film producers, music labels, talent agencies, and video game developers are just a few examples of entertainment industry businesses that may eventually decide to contact a corporate lawyer to help them incorporate.
This blog will discuss relevant legal considerations regarding when and how to incorporate your entertainment business.
What are the Reasons to Incorporate your Company
The following are a few advantages of incorporating.
Corporations are legal entities separate from their owners. As a result, a corporation is responsible for its own debts and other obligations. The liability of the shareholders, directors, officers, and employees of the corporation is limited – with a few exceptions, these individuals cannot be held personally responsible for the debts of the corporation.
There are certain industry grants that are only available to incorporated businesses.
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Corporate Tax Credits
If you want to access Canadian cultural tax credits, such as are available for films, television series or interactive digital media, the applicant must be incorporated.
Shares are a convenient and attractive solutions for investors (the shareholder) financing your entertainment business.
Private and public corporations live on until they are wound up or dissolved. Other business structures, like a sole proprietorship or partnership of individuals (ie: LLP), are more difficult to continue when the individual owner or partner dies.
There are a variety of financial tax advantages for corporations. We recommend getting in touch with an accountant for further financial advice on this point.
When is the Best Time to Incorporate your Business?
When is the right time to incorporate your business? Unfortunately, there isn’t a single answer to that question. It will depend on the particular circumstances of your business. For example, for film or television production companies, if you want to access available tax credit programs or other grants, you will want to ensure that you incorporate early in the pre-production stage.
If your business is not required to be incorporated, the decision of when to incorporate is less obvious. As your business grows, a number of things change: risk increases (when to incorporate, to manage and minimize that risk, will depend on your tolerance for that risk): the need for investment capital increases (when to incorporate, to provide a structure for investment, will depend on the capital intensity of your particular business and the availability of other sources such as profit and your own resources); taxation increases (when to incorporate, to minimize tax, will depend on whether you are retaining income in the corporation or paying all of it out to yourself as soon as it’s received).
In addition, incorporating can help to impose structure onto your business – through designated roles and corporate governance (practices and procedures that standardize the decision-making process.
The Process of Incorporating your Business
If you do decide to incorporate, the first question you need to ask is whether you are going to incorporate provincially or federally. One of the main distinctions between the two jurisdictions is that if you incorporate at the provincial level, the registered office of the corporation must be within that province.
A federally incorporated company can have its registered office in any of the provinces or territories. From a corporate governance standpoint, if you choose to incorporate federally, at least 25% of your directors must be Canadian residents. Ontario does not have a similar restriction.
Both Canadian and provincial corporations can be incorporated online without a law firm’s assistance, but a corporate lawyer can add significant value – prior to incorporation, by advising on the choice and availability of the corporate name, and on the use of multiple share classes and their attributes; and after incorporation, by issuing shares, electing directors, appointing officers, passing general and specific operational by-laws and other opening resolutions, setting up the corporate minute book and completing both mandatory and optional filings.
More information on incorporating within Ontario, can be found here. The basic government fee for registering an Ontario corporation is $300.00 CAD.
More information on incorporating federally, can be found here. The basic government fee for registering a federal corporation is $200.00 CAD.
Who Can Help you With Incorporating your Company?
If you are a business owner and have questions about incorporating your company, we encourage you to speak with Edwards Creative Law or another entertainment lawyer. Our law firm is happy to answer your questions about incorporating and to assist you with the incorporation and post-incorporation processes necessary to incorporate and to transfer your existing business into the new corporation. Read our post about The Meaning and Importance of Shareholders’ Agreements in Canada.
© 2022 Edwards Creative Law, LLP
Updated to November 21, 2022
Edwards Creative Law is Canada’s Entertainment Law Boutique™, providing legal services to Canadians, and international clients who partner with Canadians, in the Music, Film & Television, Animation, Interactive Digital Media, Game, Publishing and Software industries.
For more information or to set up a minute Discovery Call with one of our entertainment lawyers please feel free to Contact Us.
* This blog is for general informational purposes only and is not to be construed as legal advice. Please contact Edwards Creative Law or another lawyer, if you wish to apply these concepts to your specific circumstances.
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