Let me take you back to elementary school for a little geography lesson: Canada is composed of ten provinces and three territories.
What does this have to do with entrepreneurship? It’s simple, Canada’s structure and Constitution means that entrepreneurs have a choice: to incorporate federally (under the Canada Business Corporations Act) or provincially (for example, under the Quebec Business Corporations Act).
So, La Belle Province or The True North: under which regime should your future corporation be incorporated?
No idea? Don’t worry! Lex Start will explain to you the consequences of this choice.
For even more information on provincial incorporation in Quebec, download our free incorporation Ebook now.
L'incorporation, at what cost ?
First of all, incorporation under the regime of the Beautiful Province is less expensive. Why is that? Federally incorporated companies wishing to do business in Quebec must in all cases register with the Quebec Enterprise Register.
These companies must register in all provinces and territories where they intend to do business. In Quebec, these companies must therefore pay $343 CAD to register with the Registraire du Québec, whereas companies incorporated under the Quebec regime are automatically registered there and therefore don’t have to pay any fees in addition to the incorporation fees.
This means that federally incorporated companies must produce documents for Corporations Canada AND for the Registraire des entreprises, so they will have twice as much paperwork to fill out!
Please note that at Lex Start, our fixed-price incorporation kit includes government fees, whether for a federal or provincial incorporation in Quebec.
Where to set up the head office ?
Another difference between companies incorporated provincially in Quebec and those subject to the federal regime is where they can establish their head office. The Quebec Business Corporations Act imposes to establish any head office in the Quebec province. Whereas, the Canada Business Corporations Act allows corporations to establish their head office anywhere in Canada.
In addition, the name chosen by a federally incorporated company (not to be confused with its trademark) is nationally protected. For example, a federally incorporated company operates a restaurant called “Chez Géraldine”. This Quebec-based restaurant wants to carve out a place for itself in the Ontario restaurant market. Being federally incorporated, this restaurant will be able to do business in Ontario under the same name.
So, if you are already planning for your future company to do import-export business, incorporating your business federally could be a good idea.
Does this mean that provincially incorporated companies cannot do business anywhere other than on the land of Quebec? Absolutely not. However, provincially incorporated companies will have to deal with the following two problems.
First, it may be more complicated for these companies to establish themselves outside of Quebec because they will have to comply with the regulations of other provinces.
Second, the names of companies incorporated in Quebec will not benefit from a global canadian protection and may be used by other companies in other provinces and territories.
What about the name of my company for a Quebec company ?
Regarding the name of a company, two important aspects need to be addressed. First, the name of a corporation operating in Quebec, whether it’s a federal corporation or a provincial corporation, must comply to the requirements of the Quebec Charter of the French Language. This charter stipulates that corporations doing business in Quebec must have a French name.
Of course, they may also have a name in another language, but the use of this other name must comply with certain rules. For example, if it is exposed, its French version must occupy a prominent place.
Secondly, if a company wishes to incorporate federally, it will be required to submit a NUANS report to Corporations Canada, unlike provincially incorporated companies. This report will certify that no other company is using the name it intends to use.
Your actions and the different laws
The Quebec Business Corporations Act allows entrepreneurs to issue shares even if they aren’t yet fully paid, whereas the Canada Business Corporations Act stipulates that shares must be fully paid before being issued.
Something that is impossible under the Canada Business Corporations Act, the Quebec regime also allows corporations not to issue share certificates.
The decision not to issue certificates rests within the board of directors of the newly incorporated company. As you probably already know, most corporations have a board of directors, which is responsible for making decisions regarding the management and direction of the corporation.
The origin of the members of the board of directors is also legally different depending on the incorporating status. Quebec law doesn’t place any restrictions on the origin of the members of the board of directors, whereas federal law requires that 25% of them reside in Canada and are Canadian citizens or have permanent resident status.
Is federal incorporation more prestigious ?
Finally, although there is no legal basis for this, some say that a federally incorporated company enjoys a certain prestige.
Based on Corporations Canada’s statements, “federal incorporation is seen as a sign of distinction. Indeed, federal corporations are seen around the world as Canadian companies and this can have a positive impact on the trust placed in them by foreign clients and investors.
That said, there is absolutely no legal prohibition against provincial corporations doing business with the rest of the world.
Main differences between federal and provincial incorporation in Quebec
After seeing the advantages and disadvantages inherent for each of the incorporations, which one to choose? To read 3 times more content on provincial incorporation in Quebec, download our free legal guide.
Simply put, if you plan to do business throughout Canada, or even internationally, in the short term, it’s wiser to incorporate federally in order to have greater flexibility, especially in the choice of the head office, greater protection of your company’s name throughout Canada and also to benefit from a certain prestige.
On the other hand, if you are planning to do business in Quebec in the medium or long term, it’s clearly more appropriate to incorporate provincially in order to benefit from more advantageous prices and the very practical possibility of issuing uncertificated shares, even if they haven’t been fully paid.
The choice therefore depends on your projects and your aspirations! Don’t hesitate to contact us for more information.