Incorporating your Canadian Business: Federal or Provincial?

Here is a quick way to decide if you want to opt for federal or provincial incorporation. Remember you can always change to your provincially incorporated company to a federal one as and when you expand your business.

Recognition & Protection of Name: Federal incorporation may be considered a sign of distinction by companies you contract with outside Canada, although it is unclear how often this is true. Tough tests will be applied before allowing you to use a particular company name. If your business is incorporated in a particular province or territory, it is only entitled to operate in that jurisdiction and has no name protection outside that province or territory. If you decide to change to federal incorporation at a later stage, your company name may not be available. Federal incorporation allows your business to operate using its corporate name across Canada, which is especially beneficial if you decide to expand your business to other provinces or territories. Section 9 of the CBCA provides for protection of corporate name. It is important to note that this name protection is similar to, but is not as strong as trade-mark protection.

Extra Provincial Licence: A federally or provincially incorporated business will, generally be required to register or obtain an extra-provincial licence in each province in which it carries on business. However, doing business in Ontario does not require any corporation incorporated anywhere in Canada to hold an extra-provincial license. Keep in mind that there will be other filings requirements such as under other Ontario legislation such as the Corporations Information Act. 

Location: CBCA does not set restrictions regarding the province or territory where the head office or registered office is located, corporate records are maintained and annual general meetings are held. Provincial legislation often does, for example your Ontario corporation will be required to keep its registered office in Ontario.

Paperwork: A federal corporation requires greater disclosure and filing requirements. The amount of paperwork required to be filed in the case of provincial incorporation can be considerably less, especially with regard to getting the name of your company cleared. Sometimes, getting your company incorporated provincially can be a little too easy as it doesn't have the rigorous checks and balances of the federal process.

Costs: Federal incorporation set up costs are generally higher compared to provincial incorporation.

Scope of Business: A federal corporation will be able to carry on business in all provinces and territories, as long as it is registered in all the provinces in which its business will be conducted. A small business when starting out can incorporate itself provincially before it establishes its presence in other provinces. The incorporation can be changed to federal at a later stage as it expands its scope of business.  A federal corporation will be able to carry on business in all provinces and territories, as long as it is registered in all the provinces in which its business will be conducted. A small business when starting out can incorporate itself provincially before it establishes its presence in other provinces. The incorporation can be changed to federal at a later stage as it expands its scope of business.

Director Residency requirements: You may choose your incorporation based on residency requirements for Directors.

Jurisdiction:	Director Residency Requirements
Canada (federal)	At least 25% of the directors of the corporation must be Canadian residents. If a corporation has less than four directors, at least one director must be a Canadian resident.
Alberta	At least 25% of the directors of the corporation must be Canadian residents. If a corporation has less than four directors, at least one director must be a Canadian resident.
British Columbia	No requirements
Prince Edward Island	No requirements
Ontario	At least 25% of the directors of the corporation must be Canadian residents. If a corporation has less than four directors, at least one director must be a Canadian resident.
Manitoba	At least 25% of the directors of the corporation must be Canadian residents. If a corporation has less than four directors, at least one director must be a Canadian resident.
New Brunswick	No requirements
Nova Scotia	No requirements
Nunavut	No requirements
Québec	No requirements
Saskatchewan	At least 25% of the directors of the corporation must be Canadian residents. If a corporation has less than four directors, at least one director must be a Canadian resident. At least one director must be a resident of Saskatchewan. If there is no Saskatchewan director, a Power of Attorney must be appointed.
Newfoundland and Labrador	At least 25% of the directors of the corporation must be Canadian residents. If a corporation has less than four directors, at least one director must be a Canadian resident.
Northwest Territories	No requirements
Yukon	No requirements

Bottom Line:

Federal incorporation can be an excellent choice if your business needs the nation-wide business name protection that federal incorporation provides, or if you think this will put your customer or partners at ease. If your business is and plans to be operating primarily within one province, provincial incorporation will generally be ok. Incorporating in a province can sometimes be easier and faster (and potentially bad because it can let you make mistakes that may affect you later.)

International companies setting up in Canada may choose to incorporate in a province that does not have residency requirements (but they will need to do extra-provincial registrations, even in Ontario, if they conduct business there.) Provincial incorporation can be changed to federal incorporation later, although there's no guarantee that the same name will be available for the federally incorporated company.

As always, the devil is in the details. Contact us if you need legal advice on these topics or related topics and we'll answer you or put you in touch with the right people. Follow our posts at our blog at StartupLegals, to continue exploring important legal considerations for your small business.

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