In British Columbia, an entrepreneur may incorporate his or her business under the provincial or the federal law; the former is the British Columbia Business Corporations Act (hereinafter “BCBCA”), and the latter is the Canada Business Corporations Act (hereinafter “CBCA”).
In this article, we will outline the different reasons and advantages of incorporating under the federal and the provincial law in British Columbia, and look into some of the general considerations to keep in mind when incorporating.
Incorporation under the Canada business corporations act
There are three general advantages to incorporate under the Canada Business Corporations Act.
A WIDER BUSINESS NAME PROTECTION FOR AN INCORPORATION
To incorporate under the CBCA, you must clear both federal and provincial name databases to ensure your proposed name is distinct from any other registered name in Canada. This clearing process generates a NUANS report that must be filed with your incorporation form. Thus, when you incorporate federally, it is less likely to have your registration with provincial authorities refused on the grounds that the business name is similar or creates confusion with that of an already established corporation in British Columbia.
Note, however, that certain exceptions or particularities may be applicable to the registration of your business name. Moreover, bear in mind that your business name is different from your legal trademark. To learn more about trademarks, you can read our article about how to protect your business with a trademark in Canada.
A LARGER SCOPE OF LOCATIONS
In Canada, the CBCA offers a greater choice of locations where you can domiciliate the registered office, corporate records and shareholders’ meetings, or how you can establish the quorum.
CBCA: In any province or territory in Canada, as specified in the articles of incorporation.
BCBCA: Anywhere in the province of British Columbia, as specified in the articles of incorporation.
CBCA: In Canada, at the location provided in the by-laws or, in the absence of such location, where the directors determine.
BCBCA: In British Columbia, or outside of the province provided certains conditions are met (Section 166(b)).
CBCA: At the registered office or at the location designated by the directors in Canada, or outside of Canada provided certain conditions are met.
BCBCA: At the registered office, or in a different office in British Columbia that is the record keeping office.
CBCA: Quorum exists even if the shareholder or director is present electronically or over conference call.
BCBCA: Quorum exists where the shareholder or director is present or represented by proxy.
Canadian corporations benefit from an outstanding reputation on the global market. Thus, if you incorporate federally, you benefit from a sort of distinction in the eyes of international clients that may grant an additional added value to your company.
This concludes the section about the three advantages of incorporating under the CBCA. For more information about the federal incorporation, you can download our Federal Incorporation Guide. The next section dives into the advantages of incorporating under the BCBCA.
*Despite the advantages that the Federal Act offers, it is important to highlight that corporations may, in addition, have to comply with specific provincial or territorial laws to operate within that province or territory.*
Incorporation under the British Columbia business corporations act
There are three general advantages to incorporate under the British Columbia Business Corporations Act.
APPOINTMENT OF DIRECTORS FOR AN INCORPORATION
Under the BCBCA, directors are individuals:
- of sound mind and
- of at least 18 years of age,
- who have not been declared bankrupt.
However, two requirements distinguish the BCBCA from the CBCA under this section.
First, the BCBCA does not allow individuals who have been found guilty of fraud or other corporate offences to serve as directors for five years. This restriction is not provided within the CBCA, and offers additional corporate security for corporations under the BCBCA.
Second, the CBCA requires that at least 25% of the directors are Canadian residents whereas the BCBCA does not impose such a requirement. Therefore, a British Columbia corporation may appoint as many non-Canadian resident directors as it wants which grants a competitive advantage from a management and foreign investment standpoint.
PROXIMITY WITH YOUR OPERATIONS DURING AN INCORPORATION
If your corporation operates most of its activities in British Columbia, governing your activities with the BCBCA rules may fit best your needs. Note that the BCBCA does not prevent you from conducting business in another province or territory in Canada. In fact, the BCBCA does not prohibit corporations to exercise their activities outside of its territory, provided the registered office and the records office of the corporation remains in B.C. Therefore, barring exception, your corporation may establish offices outside the province of British Columbia. In doing so, you can either complete an extra-provincial registration with the public authorities of the province(s) where you want to operate in, or continue your corporation out of B.C.
To continue your corporation in another province or territory means to change your law of incorporation. To do so, you must first ensure that your corporation may be incorporated into the new jurisdiction. Thus, your corporation has to first request the foreign authority’s permission to incorporate under its jurisdiction. If such a permission is granted, two additional steps have to be undertaken with the B.C. registrar.
STEP ONE: Confirm the good standing of your corporation
Your corporation has to be in good standing to change its law of incorporation. This means that your corporation has its annual report filings up to date (Section 51), and respects the number of required directors (Section 120).
STEP TWO: File the continuing application
Once in good standing, your corporation has to file the continue out application and pay the applicable fees. If the registrar authorizes the proceeding, your corporation has six months after the date of the letter of authorization to complete its continuation into the new jurisdiction. Upon the completion of this process, a copy of the foreign registrar’s records should be filed with the B.C. registrar to confirm the continuation (section 311).
Note that the New West Partnership Trade Agreement between the provinces of British Columbia, Alberta and Saskatchewan streamlines the regulatory procedures to operate a business between these provinces. If you decide to continue your corporation or to operate into one of these provinces, the legal requirements to be met may defer, and make it simpler to operate interprovincially.
FLEXIBLE SHARE CAPITAL PROVISIONS
Unlike the CBCA, the B.C. Act allows corporations to:
- Create par value, and no-par value shares. Par value (also known as “nominal” ) shares, are securities subject to a minimum sale price when the corporation issues shares. No-par value shares are securities that do not have a minimum sale price when issued. In that case, the price investors are willing to pay on an open market determines the value of the no-par shares.
- Hold shares in its own corporation, and to sell shares to a subsidiary company. However, when a subsidiary company holds shares of its parent company, it may not vote at a shareholders’ meeting of the parent company.
- Maintain combined statements of the stated capital account (also known as “SCA”), and the paid-up-capital (also known as “PUC”). The stated capital account represents the capital paid for a purchased number of shares whereas the paid-up-capital represents the price paid per share. For example, if a corporation issues 1 000 shares at 2$ per share, the SCA is of 2 000$ whereas the PUC is of 2$. Although this distinction remains mostly significant for taxation and accounting purposes, having a combined statement that comprises the SCA and PUC simplifies the record-keeping of your corporation. For more information on this subject, we recommend you seek the help of a chartered accountant.
This sums up the section about the three advantages of incorporating under the BCBCA. The next section details some of the similarities between the BCBCA and CBCA.
Similarities between the federal and provincial laws of incorporation in British Columbia
Despite their differences, the federal and the provincial acts share certain similarities with regard to their reporting duties.
- Annual return: both the CBCA and the BCBCA require corporations to file an annual report each year to maintain an active status and good standing. This report has to be filled within 60 days of the company’s incorporation birthday, and incurs additional fees. It is important to respect this duty because repeatedly omitting to file the annual return may have important consequences on your corporation leading to its dissolution.
- Individuals with significant control: both the CBCA and the BCBCA require corporations to maintain a registry that lists the individuals who control at least 25% of the shares or votes in the corporation. Known as the Transparency Registry, this record contains certain information about the individuals qualifying as having significant direct or indirect control in your corporation. The objective of this measure is to increase corporate transparency and combat financial crimes. Note that the non-compliance to this requirement may incur severe penalties for your corporation.
This wraps up our overview of the advantages and similarities of the Canada Business Corporations Act and the British Columbia Business Corporations Act. For more information on how to incorporate federally or provincially, you can take a look at our incorporation packages.
To conclude, remember that:
- There are key factors to keep in mind when choosing your law of incorporation: the business name, reporting duties, and operations costs for example.
- You are not alone; Lex Start is here to help you incorporate your business without compromising your budget by offering affordable and customized legal services.
We hope that you are now more comfortable going forward with the incorporation of your business in British Columbia. For more information in regard to your jurisdiction of incorporation or about the incorporation process, contact us.