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Federal or Provincial Incorporation?

Incorporation is an important part of business and given the numerous financial considerations faced by owners, it’s not uncommon to choose the least expensive option. Short-term savings however may not yield long-term advantages.

In Canada, owners may choose to incorporate federally or in one of the 13 provinces/territories. Taking the long view as to where your business may grow is important and understanding the differences in incorporation can save you from incurring unnecessary expenses down the road. As part of the decision-making process, consider whether your corporation will conduct business in one or more provinces/territories in Canada and, secondly, how important is it to protect the corporation’s name.

Federal corporations are incorporated pursuant to the Canada Business Corporations Act (CBCA) and can conduct business anywhere in Canada under their registered corporate name. (Other provincial/territorial registration requirements may also apply.) Federally incorporated companies are incorporated at the federal level and then registered extra-provincially. Fees may be higher for federal incorporation since multiple filing fees may apply.

Provincial corporations are incorporated pursuant to the respective provincial legislation and only have the right to conduct business within that specific province or territory. (For example, an Ontario corporation is allowed to operate only in the Province of Ontario.)  However, it is possible for a provincially-registered corporation to secure extra-provincial registrations at a later date to carry on business in other provinces. For example, if a Manitoba corporation wanted to operate in Ontario, it would apply to Ontario for registration as an extra-provincial corporation.

Federal corporation names are generally protected across Canada. However, for provincially incorporated companies, the names are approved only for the home province. Therefore, a Manitoba corporation wanting to operate in Ontario, will have to get approval from Ontario to use its name in that province. If another Ontario corporation has a similar name, the Manitoba application corporation would be denied and they would then have to operate under a different name in Ontario.

There are also other considerations such as incorporation and registration fees and director residency requirements that may impact the decision-making process on where to incorporate. A recent client chose to register his business in Quebec as he is not a Canadian resident and Quebec is one of the few provinces that waives the requirement to have a resident Canadian director.

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