Incorporating your business is possibly one of the greatest decisions that you can make as a business owner. When you look into incorporating a company in Canada, you need to choose whether it will be a Federal or Provincial Corporation. Which one is right for you?
Both Federal and Provincial corporations have a number of same benefits. However, Federal corporations are federally regulated and operate within Federal jurisdiction under the Canada Business Corporations Act (CBCA), while Provincial Corporations are provincially regulated and operate within Provincial jurisdiction under the Ontario Business Corporations Act (OBCA). Let’s look at Federal and Provincial Incorporation’s key differences.
Corporate Name Protection
The corporate name of the business must be distinct to another existing corporate name. A Provincial corporation name must be different than other corporate names within the province only, and the approved name cannot carry to other provinces. A Federal corporation has right to use its corporate name anywhere in the country. The process for approval of a corporate name will take longer than provincial approval period as it uses throughout the nation. However, federal incorporation does not necessarily protect the name from being used by provincial corporations. A province can register a corporate name that may be similar to a federal corporation. Trademark protection is required in order to absolutely protect the name of a corporation whether it is a provincial or federal corporation. A provincial name approval remains short and easier to get the name approved due to the limited corporate names pool.
Resident Canadians Requirement
Federal corporation imposes requirements for a minimum proportion of directors (25%) to be resident Canadians. Ontario, British Columbia, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec and the Yukon do not impose any requirement for resident Canadian directors.
Extra-provincial registration means obtaining a licence from the provincial Government and/or filing any other required information that is incorporated in Canada which wishes to carry on business in another province or territory other than the province or territory in which it is incorporated. A Federally incorporated business may operate in more than one Province or Territory and in this event where the business operates in multiple jurisdictions, the Federal corporation is required to register the corporation within each jurisdiction where it has a physical location or an office.
Mandatory Corporate Filings
An Initial Return is a form document required to be filed with the government in some provinces within a specific time period after the company first comes into existence whereas Federal Corporation has no requirement to do so. Every federal corporation has to file its annual return with Corporations Canada every year.
Provincial corporations preserve more confidentiality compared to a federal corporation. Any Federal company’s information such as business name, office address, directors, annual filings are publicly available online whereas provincial corporation information are only available through a search report that involve a third-party service charge fee.
Federal incorporation can be an excellent choice if your business needs the nation-wide business name protection or will be operating internationally, however the simplicity and speed of incorporating provincially is more desirable. Additionally, if you are incorporating a federal corporation, you are required to register extra-provincially. If you own a business operating on a local level and have no plans of expanding across provinces, as well as no national customers or suppliers, it may make more sense to incorporate within your province.
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