August 26, 2024 | Danny McMullen and Ayath Azhar
Incorporating a Business
Incorporating a business involves the formal process of establishing a company as a distinct legal entity distinct from its owners. This process confers upon the business its own rights, obligations, and liabilities. Incorporating a business offers a level of protection not available to unincorporated entities, including limited liability and the capacity to issue shares.
The jurisdiction in which a business owner decides to incorporate can result in significant variations, particularly between federal incorporation and provincial incorporation in Ontario.
Federal Incorporation
The Canada Business Corporations Act (“CBCA”) is the federal legislation governing the incorporation of corporations within Canada. Opting for federal incorporation means that your business will be incorporated in accordance with the CBCA.
Federal incorporation requires compliance with specific criteria, including, but not limited to:
- 25% of the corporation’s directors must be Resident Canadian; and
- Federal corporations must keep a public register of “individuals with significant control.” Further details on this requirement can be found in our previous blog post.
Incorporating under the CBCA enables the business to operate across all provinces and territories in Canada. Simultaneously, it ensures business name protection across all jurisdictions, as the name is registered nationwide. However, despite federal incorporation, it remains necessary to register the corporation as an extra-provincial entity in the province where the registered office of the business is located as well as in any other province in which it commences business activities.
Provincial Incorporation
Provincial incorporations are completed in accordance with the Business Corporations Act (“BCA”) in effect within the province of incorporation. For most provinces, provincial incorporation does not impose residency status restrictions for directors, making it the preferable option for new Canadians or those intending to manage the company from abroad.
Incorporating under the BCA confines business operations to the province of incorporation, which may limit expansion and revenue opportunities. To conduct business across multiple provinces, a provincially incorporated entity must register under the relevant extra-provincial registration legislation in each additional province in which it intends to carry on business. For business owners who do not plan to operate nationwide, provincial incorporation is often more efficient than federal incorporation.
Provincial incorporation requires compliance with specific criteria in the BCA for the relevant province, which may include a requirement to keep a public register of “individuals with significant control.” Further details on this requirement can be found in our previous blog post.
Business name protection is also restricted to the province of incorporation, as the corporate name is registered only within that province. Consequently, there may be other businesses in different jurisdictions with a similar name.
For more information on business structures please see our previous blog post.
Here at Northview Law, we are committed to helping you through this process. If you have any questions on what jurisdiction is right for you or require assistance with your future business needs, please contact our office.
