Income Tax Act (tax considerations) · Active business & the small business deduction
Private-corporation restrictions
What the check looks for
Under ITA s. 89(1) a corporation is a private corporation for tax purposes if it is resident in Canada, is not a public corporation, and is not controlled by one or more public corporations (or certain prescribed federal Crown corporations). The mechanics that keep it there in practice are separate: the OBCA governs the restriction on share transfers, and the cap on holders and the bar on a public offering come from Ontario securities law (the NI 45-106 private issuer exemption).
Authority: ITA s. 89(1) ("private corporation"); OBCA; Ontario securities law (NI 45-106)
The Income Tax Act sets no requirements for the articles; this is a tax consideration that can follow from how they are drafted.
What goes wrong
The articles do not carry the full set of private-corporation restrictions.
What good looks like
Transfers are restricted, holders are capped at fifty and public offerings are prohibited. The corporation is drafted as a private corporation.
Check your own articles, free
The PREC Articles Health Check reads your articles of incorporation in your own browser and rates them Red, Yellow or Green against this criterion and 29 others. The check does not upload your document to us.
It reads how the articles are drafted; it does not advise on your circumstances, and Capital Toolkit does not file articles with the Province.
Capital Toolkit is an automated service. It provides general information, not legal, tax or accounting advice, and it does not replace your own lawyer or accountant. Have a qualified professional review any document before you rely on it, sign it or file it.