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Should you incorporate federally or provincially in Alberta ?

Reading time : 5 min

In Alberta, a business owner who wants to incorporate his or her enterprise may do so using the provincial law or federal law: the former is the Alberta Business Corporations Act (hereinafter “ABCA”), and the latter is the Canada Business Corporations Act (hereinafter “CBCA”).

This article will present the different reasons and advantages of incorporating under both laws in Alberta, and look into some of the practical factors to keep in mind when incorporating your business.


The federal incorporation


Why should you incorporate your business under the CBCA? Here are 3 reasons why:

  • A wider protection for your business name 

When incorporating your company under the CBCA, you must comply with various rules with respect to your business name. In fact, the CBCA requires corporations to clear both federal and provincial name databases to ensure your proposed name is distinct and unconfusing from any other registered name in Canada. This process generates a NUANS report that must be submitted with the incorporation application.

Therefore, if you incorporate under the federal law and register your corporation to operate in Alberta, it is less likely to have your registration refused because your suggested name is similar or creates confusion with that of an established corporation in the province. However, if you do not intend to operate your company outside the province of Alberta, you may not require such extensive name protection.  

Note, 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 

When incorporated under the CBCA, your corporation benefits from a greater choice of locations to domiciliate the registered office, corporate records and shareholders’ meetings, or to establish quorum.

Registered office

In any province or territory in Canada.

ABCA: Anywhere in the province of Alberta. 

Shareholders’ meetings

CBCA: At any location in Canada, as provided in the by-laws or by the directors.

ABCA: At any location in Alberta, as provided in the by-laws or by the directors, or outside of the province, provided certains conditions are met (Section 131(2)).

Records keeping

CBCA: At the registered office and anywhere in Canada as designated by the directors, or outside of Canada, provided certain conditions are met.

ABCA: At the registered office, or in a record keeping office in Alberta.

Quorum

CBCA: Quorum exists even if the shareholder or director is present electronically or over conference call.

ABCA: Quorum exists where the shareholder or director is present or represented by proxy.

  • International prestige

If you want to expand your company overseas, you should know that Canadian corporations possess an outstanding global reputation. Therefore, incorporating under the Federal Act grants a form of distinction to international clients; it constitutes an added value that is exclusive to the federal law of incorporation. 

This sums up the three reasons to incorporate under the CBCA. For more information about the federal incorporation, you can download our Federal Incorporation Guide. The following section looks into the advantages of incorporating under the ABCA. 

*Despite the advantages offered by the CBCA, it is important to highlight that a corporation may have to comply with additional laws specific to the provincial or territorial authority where it operates.*

 


The provincial incorporation


Why should you incorporate your business under the ABCA? Here are 3 reasons why:

  • Tax advantages

You should incorporate your business provincially because the Alberta Corporate Tax Act provides the lowest corporate tax rates in Canada to businesses incorporated and established in Alberta. Additionally, this act provides for certain tax exemptions on capital, general sales, and payroll taxes that allow corporations to benefit from one of the most advantageous taxation rules in Canada. Shareholders may benefit from similar tax deductions and exemptions too. For additional information on this subject, we invite you to contact a chartered accountant.

  • Favourable corporate environment

First, the ABCA does not impose a residency requirement on corporate directors, whereas the CBCA requires that at least 25% of the directors reside in Canada. Thus, because an Alberta corporation may appoint as many non-Canadian resident directors as it wants, it constitutes a more attractive option for foreign investors. 

Second, in 2020, the Alberta legislature adopted two important laws that set Alberta as one of the most competitive and favourable jurisdictions to start and operate a business in Canada:

  • The Red Tape Reduction Implementation Act that amends 15 laws with the objective of simplifying and incentivizing the establishment and operation of businesses in Alberta. This article does not cover these amendments. However, you can contact us to learn more about what these changes entail for your business. 

  • The Alberta Investment Attraction Act that establishes the Invest Alberta Corporation who is responsible for adopting measures to attract foreign investments in various leading economic sectors.

For all these reasons, the province of Alberta confers many advantages to businesses incorporated in its corporate environment. 

  • Absence of ownership and control transparency obligations

The CBCA requires corporations to maintain a register that discloses certain information about individuals with significant control or ownership in the corporation. For example, individuals with at least 25% of shares or votes of the corporation qualify as having significant ownership in the corporation. This register has to be up to date and available for consultations. 

In Alberta, the ABCA does not require corporations to maintain such a register. Therefore, the ABCA represents a more business-friendly jurisdiction due to its fewer administrative requirements, and enhanced protection of corporate and commercial information. 

This wrap ups the three reasons why you should incorporate under the ABCA. The following section dives into the similarities between both laws.


Similarities between the federal and provincial incorporation


Despite their differences, the CBCA and the ABCA share certain commonalities with regard to their annual return, and directors’ liabilities and indemnities.

  • Liabilities and indemnities: when a director is being sued for an alleged fault committed in performance of his or her duties for the corporation, both laws allow a director to utilize the defences of good faith, reasonable diligence, or a combination of both. For any director, this possibility represents a significant source of security when facing a judicial action. Additionally, when a director incurs a personal debt for the account of the corporation and in performance of his or her duty as a director, both laws permit extensive indemnities for directors that can even take the form of advance payments. 

  • Annual report: both laws require corporations to file an annual report to maintain an active status and good standing. This report has to be filled within the provided delay. It is important to respect this duty because repeated omissions to file the annual return in time may lead to the dissolution of your corporation. 

This concludes our overview of the advantages and similarities of the Canada Business Corporations Act and the Alberta Business Corporations Act. For more information about our incorporation process, you can take a look at our incorporation packages.


Conclusion


To conclude, remember that:

  • Certain practical factors need to be kept in mind when choosing your law of incorporation, for example the taxation and administrative duties, and the business environment of your jurisdiction of incorporation. 

  • 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 Alberta. For more information in regard to your jurisdiction of incorporation or about the incorporation process, contact us.

Mihai Gheorghe Cioc
Legal editor