Canada provides a wealth of opportunity for businesses and our local experts discuss the regulatory requirements when establishing a presence in the country.
Canada offers benefits for companies looking to establish or expand their presence, from low business tax costs to interprovincial agreements. When establishing a business, the incorporation process can be simple but as with any process, companies need to understand and abide by rules and regulations to stay compliant.
Background on Canada
This G-8 member country is a dynamic market with a highly educated workforce, low business tax costs and a sound banking system; it also offers good overall living conditions and quality of life.
In addition to the G8, Canada participates in various world-class groups that are leading trade and foreign direct investment activities in the world, such as the Trans Pacific Partnership (TPP) and Foreign Investment Promotion and Protection Agreement (FIPA). The TPP is a trade agreement among the twelve Pacific Rim countries to promote economic growth; whereas, FIPA is a bilateral trade agreement aimed at protecting and promoting foreign investment so there is minimal disparity between similarly situated domestic investors.
Incorporating a business
To incorporate a business in Canada, companies must choose between federal and provincial/territorial incorporation. If interested in carrying business in more than one jurisdiction, the business will have to complete an extra-provincial registration in each individual jurisdiction.
Listed below are the benefits and implications of choosing the federal legislation or Canada Corporations Act (CBCA).
• Separate legal entity: a corporation has the same rights and obligations under Canadian law as a natural person;
• Limited liability: limits the liability of the shareholders, shareholders are not responsible for the corporations debts;
• Lower corporate tax rates: corporations are taxed separately from their owners, corporate tax rate is generally lower than the individual tax rate;
• Greater access to capital: corporations are often able to borrow money at lower rates than those paid by other types of businesses, usually financial institutions tend to see loans to corporations less risky;
• Continuous existence: while partnership or sole proprietorship ceases to exist upon the passing of its owner(s), a corporation would continue to live on even if the shareholder and director were to pass away. It gives the corporation greater stability.
• Higher start-up costs
• Increased formalities: federally incorporated business must file certain documents with Corporations Canada, such as:
- articles of incorporation
- annual return
- notices of any changes in the board of directors and/or the address of the registered office
- maintain a minute book
- file corporate income tax returns; and
- register in any province or territory where it carries business.
The CBCA does not place restrictions (such as minimum size) on business that may incorporate – almost any type of business can incorporate under the CBCA. However, banking insurance, and loan and trust companies, as well as not-for-profit corporations, are incorporated under different laws.
If the company decides to incorporate under the laws of a province or territory, the requirements will vary. Many small businesses plan to operate in more than one province or territory, either now or in the future. These businesses often choose to incorporate under the CBCA in the first instance in order to simplify their business relations later, if they decide to expand operations.
Registered and records office
Every Canadian corporation requires a registered office and a records office. The address must be a physical location in the province of incorporation – a post office box is not acceptable.
A registered office is important for three reasons:
1) if a corporation is ever sued, the corporation is served with the court action documents delivered to the registered office
2) the corporate registry sends annual reminders of the corporation
3) the place where directors of a corporation may send their notices of resignation
The records office is the location where the corporation is required to keep its corporate records. The office must be open to public viewing of required information between business hours.
If the company is also registered extra-provincial in another province or territory it would require appointing an agent/attorney for service. This is a person who represents your corporation in that specific jurisdiction.
Branches vs. subsidiaries
A branch office is an extension of the parent corporations business, while a subsidiary is a separate corporation which is controlled by the parent corporation.
Branch registrations permit foreign corporations to operate branch offices in Canada. To run, branches must be registered in each province in which the foreign business proposes to operate. Some of the requirements are listed below.
• Apply for registration as an Extra-provincial or Foreign Corporation.
• Provide a registered Canadian address and a Canadian resident attorney/agent for service (so that the corporation has local representation in order to receive service of documents and to deal with administrative matters locally).
A subsidiary, in contrast, is a Canadian corporation whose controlling or sole shareholder is another corporation. A subsidiary corporation allows for a division of liability between the Canadian operation and the foreign operation.
Extra Provincial Registration and the provincial trade agreement
The Extra Provincial Registration is a license from the Government of a jurisdiction for companies to carry on business in that jurisdiction. This may require filling additional information.
‘Carrying on business is defined broadly to cover most business/commercial activities. It includes but is not limited to, having an agent, representative, warehouse, office and/or an interest in real property (other than a security interest, such as a mortgage). A single transaction may constitute “carrying on business”.
The New West Partnership Agreement (NWPA) was put in place to simplify or eliminate the registration and reporting requirements and to make business expansion more cost-effective. This agreement is a trade relationship between Alberta, British Columbia, and Saskatchewan that makes it easier for corporations, limited partnership and limited liability partnerships to operate across provincial borders. Businesses work through their home province registry, which facilitates ‘out of province’ registration in the neighbouring provinces.
Director residency requirements
Each jurisdiction has its own requirements concerning the residency of a corporation’s directors.
British Columbia, Quebec, Prince Edward Island, Nova Scotia and New Brunswick are the only provinces in Canada that waive the corporate directors' residency requirements. This is especially important for foreign individuals and businesses wishing to register businesses in Canada, as they will not have to appoint resident Canadian directors if they incorporate in any of these provinces. The table below list requirements by jurisdiction.
Ultimately, corporations need to stay abreast of rules and regulations to stay compliant and avoid facing risks to their operations and reputation.
Canada is ranked number 57 in the Global Benchmark Complexity Index 2015, a study on how complex it is for multinational companies to stay compliant with local corporate regulation and legislation. Download the report for more information, or contact our local team on setting up in Canada with speed, safety and efficiency.