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Incorporating a business federally or provincially in Canada involves distinct processes with varying implications. Federal incorporation provides nationwide recognition and protection of your business name but requires compliance with federal regulations, which can be more costly. Provincial incorporation limits your business operations to the specific province, ensuring compliance with provincial laws.

This blog will outline a business owner’s primary considerations when deciding whether to incorporate federally or provincially.

The Advantages of Incorporating a Business

Incorporating a business is the process of legally establishing a company as a separate entity from its owners. This means the business becomes a distinct legal entity with its own rights, obligations, and liabilities. In comparison, there is no distinction between the individual and the business when operating a sole proprietorship.

Incorporation offers several advantages, such as limited liability, which protects the owners’ personal assets from business debts and lawsuits. It also provides a perpetual existence, meaning the business can continue to operate even if the owners change. Additionally, a corporation can issue shares, allowing for easier capital raising and potential tax benefits.

Incorporating a business can also provide a level of protection and flexibility that is not available to unincorporated businesses. However, the jurisdiction in which a business owner chooses to incorporate can have differences, especially in Ontario or federally. These differences are explored in more detail below.

The Canada Business Corporations Act

The Canada Business Corporations Act is federal legislation that governs the incorporation, regulation, and dissolution of corporations in Canada. It sets out the rules for how corporations are created, how they operate, and how they can be dissolved.

Incorporating under the Canada Business Corporations Act provides broad rights to business owners concerning the operation of their business in the country as a whole and it enables businesses to operate across all provinces and territories of Canada. Federal incorporation also provides business name protection in every jurisdiction, regardless of where the business is registered. This protection can be very valuable, depending on the nature of the business.

If incorporated federally, there are specific requirements that the corporation must meet, which are generally not required of provincial corporations. Specifically, this includes, but is not limited to:

  • 25% of the corporation’s directors must be resident Canadians to incorporate and operate under the Canada Business Corporations Act; and
  • Federal corporations must keep a register of “individuals with significant control” and provide this information to Corporations Canada so that it can be made available to the public. We have previously written about these new transparency requirements.

Although generally more demanding in terms of regulatory requirements, federal incorporation can be cheaper, depending on the jurisdiction. For example, incorporating under the Canada Business Corporations Act typically costs approximately $200, whereas in Ontario, the initial incorporation fee is $300.

The Ontario Business Corporations Act

The Ontario Business Corporations Act governs the formation, governance, and dissolution of corporations in Ontario. Similar to the Canada Business Corporations Act, it sets out the rules and regulations for incorporating a business, including the requirements for shareholders, directors, and officers.

Although largely reflective of the requirements of the Canada Business Corporations Act, the Ontario Business Corporations Act has some differences. Most notably, the Ontario Business Corporations Act does not provide the ability to perform business in any jurisdiction other than Ontario. To do so, a provincially incorporated business must register under the respective extra-provincial registration legislation, which can be costly. This means provincial incorporation should generally take precedence when performing business solely or primarily in Ontario.

The Ontario Business Corporations Act also only protects a company’s business name in Ontario. The business name must be registered under the respective extra-provincial registration legislation to attain name protection in other provinces.

However, despite its protective shortcomings compared to the Canada Business Corporations Act, the Ontario Business Corporations Act does not require Canadian director residency or the sharing of the “individuals with significant control” register. Currently, the Ontario Business Corporations Act has less restrictive reporting obligations.

Ultimately, the legislation that a business should incorporate under depends on the specific needs and goals of the business and its owners.

Contact the Corporate Lawyers at Bader Law for Assistance With Incorporation

If you are contemplating incorporation, it is important to seek legal advice regarding your options. At Bader Law, our knowledgeable corporate lawyers provide comprehensive business services to address every element of a corporation’s life cycle. Our business law team has been advising businesses and business owners for over a decade and we have built a reputation for providing tailored and trusted legal guidance to develop strategic legal solutions to fit your needs. We also assist companies with various legal issues from employment contracts to real estate matters. Our lawyers help business owners and employers consider the complete picture to identify and mitigate potential risks while protecting the continued growth and success of the business. Contact us online or by phone at (289) 652-9092 to learn how we can assist you.