Federal versus Provincial Incorporation
September 18th, 2017 by Mathieu Lafreniere
As a new business, one of the questions facing a business owner is whether you should incorporate at the provincial or federal level. There are of course benefits to either option and it is up to the individual owner to determine which fits their corporation best.
Incorporating federally has some benefits, one of which is that the corporation has the right to carry on business anywhere in Canada. There are no restrictions on where the head office is located, corporate records are maintained and annual general meetings are held. Further, there is a higher threshold for name protection if the corporation is incorporated federally. The tests before granting a corporate name are more stringent, but the name is then protected across the country. Lastly, as the corporation would be registered under the Canada Business Corporations Act, it receives global recognition as a Canadian company.
There are, however, drawbacks to the federal incorporation process. Simply put, it takes extra time and money. If you choose to incorporate federally, you still have to register your business in any province or territory where it carries on business. Further, “federal incorporation will involve more paperwork every year, as you will need to comply with the corporate filings required by the federal Director of Corporations Branch and all filings required by the provinces that your corporation is registered in”[1]. Lastly, federal incorporation may cost more. While the upfront costs may be less (depending on the province), there may be additional fees resulting from the need to register your corporation extra-provincially and extra costs incurred because of the additional annual paperwork required.
Some corporate entities will not have the benefit of making the decision; professionals like doctors, lawyers and dentists are restricted to incorporating provincially. Further, if you are a restaurant, farm or any other business that operates in a single location and there are no plans to expand to another province or country, provincial registration is likely the best option for your corporation. However, if external expansion is a possibility, the corporation should weigh its options thoroughly.
[1]http://sbinfocanada.about.com/od/incorporation/f/Provincial-Versus-Federal-Incorporation.htm
Notice: The articles on our website are provided for general information purposes only and should not be relied upon as legal advice or opinion. They reflect the current state of the law as at the date of posting on the website, and are subject to change without notice. If you require legal advice or opinion, we would be pleased to provide you with our assistance on any of the issues raised in these articles.
