The decision to incorporate federally or provincially can have several implications on your business. Many times, clients have contacted me to understand the differences between them and to seek guidance on which structure would work best for their business. The classic lawyerly answer is—it depends.
First, clients must decide what business structure will work best for them and also take into consideration the goods or services they intend to provide. A major factor in determining the best business structure is the tax implications that could be imposed. Next, you must determine whether you will operate your business primarily within one province or on a national or international scale. If you intend to expand nationally or internationally, such as the U.S., incorporating federally under the Canada Business Corporations Act (the “CBCA”) might be the best solution for you. Rather, those intending to operate a business on a smaller scale, primarily within one province, might incorporate provincially, under the Ontario Business Corporations Act (the “OBCA”).
Application & Fees
The application and fees when incorporating federally are initially cheaper and more streamlined since everything may be completed online. When incorporating provincially, such as Ontario, you are required to use a third-party service provider when filing your incorporation documents online. The services fees associated with the third-party service provider are more expensive than if you were to incorporate federally.
Name Protection & Recognition
One of the benefits of incorporating federally is that a company’s right to use a particular name is protected across Canada, only after conducting a NUANS search and applying a strict test to approve the name. Proposed business names must be cleared by Corporations Canada to ensure that they do not conflict with any existing businesses. In addition, businesses that are incorporated federally receive global recognition as a Canadian business to their foreign customers and suppliers.
However, this is not the only avenue to protect your business. Businesses that sell goods and/or services may seek trademark protection over their brand name, which is afforded greater protection. For more information on trademark law and the rights granted to owners, please refer to our firm’s publication on "A Guide to Trademarks & Brand Protection in Canada."
On the other hand, businesses that operate primarily within one province are granted protection over their business name solely within that province. In Ontario, a NUANS search report is required prior to incorporating to determine whether there are any business names that conflict or are exact matches with your proposed name. Additionally, if you decide to carry on business in another province or territory, you will be required to register extra-provincially/territorially and will need to ensure that your name does not conflict with any existing businesses in those other provinces or territories.
Right To Carry On Business
Federally incorporated businesses may carry on business throughout Canada. Unlike businesses incorporated provincially, there are no restrictions as to where the head office may be located, corporate records are maintained and annual meetings held.
Businesses that are incorporated provincially, such as Ontario, may only operate within that province. In order to conduct business within other provinces, they may register extra-provincially in the provinces in which they intend to operate. Another alternative is if the business later expands nationally or internationally, then they may decide to continue (export) from a provincial to a federal business. However, those who file continuances to become a federal business from their originating province must still register in each province where they intend to conduct and operate a business.
Corporate Filings & Requirements
Both federal and provincial businesses have corporate filings. A federal business is required to file an annual return, which costs $12 each year to file online. In Ontario, a business is required to file an Initial Return within 60 days of incorporating. Additionally, if there are any changes to the board of directors, officers or the registered office of the business, then a Notice of Change must be filed within 15 days of such changes.
If you decide to incorporate federally, you should be aware that the registered office address you use will become public information, as well as the names of the board of directors, annual filings and corporate history of the business. This means that if you are operating out of your home office, then your home address will become public and available upon search. Thus, if you require privacy, it might be in your best interests to incorporate provincially. Provincial searches are not available to the open public. To search for a business in Ontario, a third-party service provider is required.
In considering whether to incorporate federally or provincially, clients must decide if they intend to expand their business in the foreseeable future or whether they intend to operate locally within one province. If they intend to conduct business primarily within one province, are looking to keep operational costs down, reduce the number of corporate filings and are seeking more privacy, then incorporating provincially might be the best solution for you.
For more information on federal and provincial incorporations, please contact Ranieri Law to find the best business solution for you.
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