Deciding whether to Incorporate your company federally or provincially/territorially in Canada depends on your business needs, goals, and the scope of your operations. Here’s an overview of the differences between federal and provincial/territorial incorporation, as well as the advantages and disadvantages of each:
Scope of Business Operations
- Federal Incorporation:
- Nationwide Name Protection: Federal incorporation provides your business with the right to operate under your corporate name across all provinces and territories in Canada. Your name is protected nationwide, meaning no other company can register the same name, regardless of where they are in Canada.
- Cross-Province Operations: Federal incorporation might be more efficient if you plan to operate in multiple provinces or territories since you won’t need to register your business name separately in each jurisdiction.
- Provincial/Territorial Incorporation:
- Name Protection Within the Province: When you incorporate provincially, your business name is protected only within that specific province or territory. Other businesses in other provinces could potentially register the same name. However, in most provinces, provincial incorporations do not require an extra-provincial license for corporations registered in another province. Check to see what is required in the province you incorporate in.
- Local Operations: If your business will primarily operate within one province, provincial incorporation may be sufficient and more straightforward.
Cost and Complexity
- Federal Incorporation:
- Higher Initial Costs: Federal incorporation generally involves higher initial costs, including filing fees and the requirement to obtain a NUANS report that searches across all provinces and territories.
- More Complex: The process is slightly more complex, as you will need to file annual returns federally and possibly register your corporation in each province or territory where you do business (called “extra-provincial registration”), which involves additional fees and paperwork.
- Most importantly, federal registration requires much more information to be revealed about shareholders and the background of shareholders which may not be revealed.
- Provincial/Territorial Incorporation:
- Lower Initial Costs: Incorporation fees are typically lower at the provincial level, and you only need to deal with the provincial government.
- Simpler Process: The process is generally more straightforward if you only plan to operate in one province, and ongoing compliance is managed solely with the provincial government. Most provinces do not require Extra-Provincial licenses for corporations registered in other provinces. And no details about shareholders.
Ongoing Compliance and Reporting
- Federal Incorporation:
- Dual Reporting Requirements: Federal corporations must file annual returns with Corporations Canada, in addition to any provincial/territorial filings required where they operate. This can mean more administrative work.
- Bilingual Requirements: Federal corporations may have bilingual requirements for corporate names (both English and French) and potentially other corporate communications.
- Provincial/Territorial Incorporation:
- Single Reporting Requirement: Provincial corporations only need to file annual returns with their provincial government, reducing the administrative burden.
- Language Requirements: Language requirements vary by province but are typically less stringent than federal requirements.
Reputation and Perception
- Federal Incorporation:
- National Presence: Incorporating federally can give the impression of a larger, more established business with ambitions to operate nationally or internationally. This can enhance credibility with partners, clients, and investors across Canada.
- Greater Flexibility in Business Name: Since the federal name search is nationwide, you might have more options for choosing a name, avoiding conflicts with businesses registered only provincially.
- Provincial/Territorial Incorporation:
- Local Focus: Provincial incorporation can signal a focus on local or regional markets, which might be beneficial for businesses whose primary customer base is within one province.
- Easier Naming Process: Since the name only needs to be unique within the province, it might be easier and quicker to find an available name.
Extra-Provincial Registration
- Federal Corporations:
- Requirement to Register in Provinces: If you incorporate federally but operate in one or more provinces, you must register your corporation in each province where you do business. This extra-provincial registration comes with additional fees and compliance requirements.
- Provincial Corporations:
- Need for Extra-Provincial Registration: If you expand your business outside your home province, you may need to register extra-provincially in each new province where you operate, similar to federally incorporated businesses.
Summary of Key Differences
- Federal Incorporation: Offers nationwide name protection and is ideal for businesses operating across multiple provinces or intending to expand Internationally. It involves higher costs and more complex compliance.
- Provincial Incorporation: Suitable for businesses operating primarily within one province, with lower costs and simpler compliance but limited name protection to that province.
Which is Better?
- Federal Incorporation: Best if you plan to operate across Canada or Internationally or want nationwide name protection.
- Provincial Incorporation: Best if your operations are limited to a specific province, and you want a simpler, less expensive process.
The decision should be based on your business’s current operations and future growth plans.
If you have any questions, feel free to reach out to Peter at Peter@welshlaw.ca