The Differences Between Canadian Federal and Provincial Incorporation
Should you incorporate your business with the federal government of Canada or with a province. This is one of the most important decisions entrepreneurs make when incorporating their business. Each form of incorporation has unique advantages and disadvantages. Entrepreneurs should consider their long-term plan for their business. Will your business operate out of Toronto and you do not have plans for expansion? Do you want to expand to several provinces eventually? These are some of the considerations entrepreneurs need to account for when determining where to incorporate.
Incorporating federally and provincially each have unique advantages and disadvantages.
Which Laws Apply?
Your legal obligations and requirements vary depending on whether you incorporate your business in a province or federally. If you are a for-profit corporation incorporating with the Federal Government of Canada you will likely incorporate pursuant to the Canada Business Corporations Act. (CBCA) If you are a not-for-profit corporation incorporating with the Federal Government of Canada you will incorporate pursuant to the Canada Not-for-profit Corporations Act. This is the case for the majority of companies other than those relating to cooperatives, financial institutions, and organizations incorporated by a special act.
If you incorporated with a local provincial government, you are incorporated pursuant to the applicable provincial corporate statute. The particular statute varies by province. The following is a list of relevant statutes for Canada’s provinces:
- Ontario – For-profit: Business Corporations Act – Not-for-profit: Not-for-profit Corporations Act
- British Columbia – For-profit: Business Corporations Act – Not-for-profit: Societies Act
- Alberta – For-profit: Business Corporations Act – Not-for-profit: Companies Act
- Saskatchewan – For-profit: Business Corporations Act – Not-for-profit: Not-for-profit Corporations Act
- Manitoba – For-profit and not-for-profit: Corporations Act
- Quebec – For-profit: Business Corporations Act – Not-for-profit: Companies Act
- New Brunswick – For-profit: Business Corporations Act – Not-for-profit: Companies Act
- Nova Scotia – For-profit: Companies Act – Not-for-profit: Societies Act
- Prince Edward Island – For-profit and not-for-profit: Companies Act
- Newfoundland and Labrador – For-profit and not-for-profit: Corporations Act
- Yukon – For-profit: Business Corporations Act – Not-for-profit: Societies Act
- Northwest Territories – For-profit: Business Corporations Act – Not-for-profit: Societies Act
- Nunavut – For-profit: Business Corporations Act – Not-for-profit: Societies Act
Business Name Protection
Business name protection is a major difference between incorporating provincially or federally. Incorporating your business with the federal government of Canada gives your business increased business name protection. You acquire the constitutional right to carry business anywhere under your registered corporate name. This right is subject to extra-provincial and territorial registration. Our Grit Packages include extra-provincial registration in Ontario. The right to use your registered name is also subject to trademark claims. You can learn more about trademark protection in an upcoming blog post.
When your name is registered with the federal government of Canada under the Canada Business Corporation Act, you receive greater protection than provincial incorporation. Certain provinces will prohibit companies with similar names from incorporating using the same name. In order to determine whether a name you are registering has not already been incorporated by another company, you must conduct a NUANS name search. This is done at the provincial or federal level depending on where you plan on incorporating. You are required to conduct a NUANS name search regardless of where you plan on incorporating. One NUANS search is included with our Grit Start Up Package. Additional searches are provided at a reduced cost, if necessary. Often, only one NUANs search is needed.
Incorporating your company provincially gives you the right to carry on business in the particular province or territory where you incorporated. For example, if you incorporated your Toronto business Provincially in Ontario, you are only allowed to operate in Ontario.
Whether you incorporate your business with the Federal Government of Canada or you incorporate in Ontario or another province/territory, you may need extra-provincial registration. This is especially important if you are operating in a province where you are not incorporated. This topic will be covered in detail in later posts.
Cost of Incorporation
Cost is an important factor in determining where to incorporate. The fees associated with incorporating are broken into two categories.
Lawyer Fees + NUANS Search and Government Fees
Often lawyers charge different fees whether you decided to incorporate federally or provincially. Fees also vary depending on whether a client selects a number or name corporation. Our Grit Packages allow you to decide whether you want to incorporate federally or provincially without any additional cost. We have one flat fee regardless of where you decide to incorporate. You decide what is more appropriate for your business.
NUANS Search and Government Fees
NUANs and government filing fees depend on where you incorporate. Federal incorporation is typically more expensive with the exception of Ontario Provincial incorporation. You can view particular fees for each province and territory here. Total government fees range from $200 – $700. Incorporating federally can cost between $220 – $300 in government fees. The total depends on your particular needs.
Legal and Administrative Requirements
Your legal and administrative requirements vary depending on where you incorporate. For instance, each jurisdiction has its own residency requirements for corporate directors. The federal government of Canada requires at least 25% of directors to be resident Canadians. The province of Ontario also requires at least 25% resident Canadian directors. Some provinces have no residency requirements. This has implications for foreign residents. For example, if a U.S. resident wants to incorporate a company in Canada as the sole owner and director, he/she may only incorporate provincially in British Columbia, New Brunswick, Nova Scotia, Prince Edward Island and Quebec.
These requirements do not, however, apply to officers and shareholders. Officers and shareholders do not need a minimum number of Canadian residents regardless of the jurisdiction.
There are many unique advantages and disadvantages to incorporating federally and provincially. There are also advantages and disadvantages for each particular province. Once you incorporate your business, it is important to consider whether and where to register extra-provincially. This topic is covered in the next article.
This is not a comprehensive list of differences between each incorporating jurisdiction. For additional information, contact us at firstname.lastname@example.org.