Should your business be incorporated federally or provincially ?
What does that have to do with entrepreneurs? Well, due to Canada’s composition and it’s Constitution Act, an entrepreneur wanting to do business in Canada can incorporate his or her company either federally (under Canada’s Business Corporations Act) or provincially (under, for example, Quebec’s Business Corporations Act).
La Belle Province v The True North: Which law should you choose for your future business?
Don’t worry, Lex Start is here to help you answer that question.
HOW MUCH DOES IT COST TO INCORPORATE?
First and foremost, being incorporated according to Quebec’s business corporation act is less expensive. Why? Because businesses incorporated federally still have to register in Quebec’s enterprise register if they wish to do business here.
In fact, federally incorporated businesses have to register themselves in every province and territory in which they plan to do business.
Thus, in Quebec, they have to pay an extra $331 while businesses incorporated under Quebec’s law are automatically registered and do not need to pay additional fees.
This also means more paperwork for federally incorporated businesses, as they’ll have to provide all the paperwork requested by both Corporation Canada and Quebec’s enterprise register.
WHERE CAN I HAVE MY HEAD OFFICE?
Another difference between federal and provincial incorporation lies in the territory in which they can have their head office. In contrast with Quebec’s law, Canada’s Business Corporations Act gives corporations the opportunity to have their head offices anywhere a mari usque ad mare (in Canada).
Moreover, the name chosen by businesses incorporated under Canada’s law (not to be confused with their trademark) will be protected nationwide.
Let’s say, for instance, that a federally incorporated restaurant named «Chez Géraldine» is established in Quebec and wants to set foot into Ontario’s restaurant market. It will be able to set up shop in Ontario under the same name. Having your company incorporated under Canada’s Business Corporations Act might also be a good idea if you already plan to do a lot of import and export activities elsewhere in Canada.
Does that mean that companies incorporated under Quebec’s law can’t do business elsewhere in Canada? Absolutely not.
However, it does mean two things. Firstly, it means that it might be harder for them to establish themselves outside of Quebec as they will have to abide by other provincial regulations. Secondly, it means that they won’t be able to claim nationwide name protection if their name is already used by other companies in other provinces and territories.
WHAT ABOUT THE NAME OF THE COMPANY?
While we are on the subject of a “company name”, it is important to note two things.
First of all, whether your company is incorporated under Quebec’s law or incorporated federally and does business in Quebec, your company name will have to comply with Quebec’s Charter of the French Language.
The Charter stipulates that companies in Quebec must have a French business name. Businesses are also allowed to use a name in another language but a few rules apply to how that other name can be used. For example, if the company name is displayed, the French version will have to have a more important visual impact.
Secondly, if you want your company to be incorporated federally, you will have to submit a NUANS search report to Corporation Canada. This report will ensure Corporation Canada that another federal corporation is not already using the name you plan to give your business.
THE SHARES AND THE DIFFERENCES BETWEEN THE TWO LAWS
Regarding shares, Quebec’s Business Corporations Act allows entrepreneurs to issue shares even if the shareholder hasn’t completely paid them, whereas Canada’s law stipulates that shares must be entirely paid before they are issued. Quebec’s law also grants entrepreneurs the possibility of not issuing share certificates when they issue shares, something that is not possible under Canada’s Business Corporations Act.
That decision will have to be made by the board of the company newly incorporated under Quebec’s law. As you may already know, corporations generally have a « board » responsible for taking certain decision regarding the company’s management and direction.
While Quebec’s law does not prescribe any restriction in that regard, Canada’s Business Corporations Act requires that 25 % of board members are Canadian residents.
IS FEDERAL INCORPORATION MORE PRESTIGIOUS?
Lastly, although this has no legal basis, some may say that incorporating your company federally is better because of the prestige associated to it. As a matter of fact, Corporation Canada claims that «Federal incorporation is a sign of distinction».
Indeed, corporations subject to Canada’s Business Corporations Act are perceived in the world as «Canadian corporations» which can have a positive impact on the confidence their foreign customers and investors give them.
However, it is important to keep in mind that there is no legal prohibition for provincially incorporated companies to do business elsewhere in the world.
|Provincial incorporation||Federal incorporation|
|Incorporation process only with Quebec’s enterprise register ($).||Incorporation process with both Corporation Canada and Quebec’s enterprise register if they want to do business in Quebec ($$).|
|The company’s head office must be in Quebec.||The company’s head office can be anywhere in Canada.|
|The company doesn’t have to produce any name search report.||The company has to produce and submit a NUANS report to Corporation Canada in order to have or use a customized name.|
|The company name must respect the Charter of the French Language.||The company name must respect the Charter of the French Language if it does business in Quebec.|
|The company’s name is protected within Quebec.||The company’s name is protected Canada wide.|
|The company can issue shares even if a shareholder hasn’t completely paid them.||All shares issued by a company must have been entirely paid for.|
|The company is not obliged to issue share certificates.||The company has to issue share certificates.|
|The company can do business worldwide.||The company can do business worldwide and might benefit from the prestige associated to federal corporations.|
|The company is free to choose its board members.||25 % of the company’s board members must be Canadian residents.|