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Starting a business in Canada comes with two types of corporations, federal and provincial, with the main difference being the jurisdiction under which they operate. Federal corporations operate under federal law while Ontario corporations operate under Ontario law.
But which corporation is better for your business? This article will explore the key differences between federal and provincial corporations by highlighting their pros and cons to help you understand more.
Federal incorporation means that the company will operate under the Canada Business Corporations Act (CBCA). Your business will operate and be recognised nationwide, across all provinces and territories in Canada. Federal incorporation offers nationwide name protection and flexibility to tap into a wider reach.
Since federal corporations operate nationwide, the name of your company will be protected in Canada. No entrepreneur will be able to legally incorporate their business, whether federally or provincially, with a similar or the same name as that of your company.
Borderless business operation
Federal businesses are not tied to one province or territory. They can legally operate nationally, allowing you to conduct business across any province and territorial borders and even partner with international businesses.
Liability protection
Business owners, directors, and shareholders’ assets are protected from the business’s credit liabilities and litigations.
Flexibility
Federal-incorporated businesses have the flexibility of expanding across borders. It makes it easier to operate in multiple provinces; however, you will need extra-provincial registration in the province you wish to operate.
Affordable to set up
Incorporating a corporation federally is cheaper than incorporating provincially. Government fees to incorporate a federal corporation online is CA$200 while fees for provincial incorporation in provinces such as Ontario is CA$300.
Annual compliance
Federal corporations must file annual returns regardless of whether they are trading. The annual compliance includes tax returns, maintaining accurate corporate records, updating company ownership information, holding shareholders meetings, and updating information about company structure with relevant regulatory bodies.
Administrative tasks
Federal corporations have complex administrative tasks such as accounting, filing, reporting responsibilities, office management, policy development, and resource management. Federal corporations also must adhere to record-keeping and legal requirements.
Resident Canadian Director Requirement
Unlike provincial corporations at least 25% of the directors must be “resident Canadians” (or 1 director if the board has fewer than 4 members) for federal incorporations. This can be a challenge for foreign-owned or internationally-managed businesses.
Stricter Name Approval
Federal incorporation involves a more rigorous name approval process through Corporations Canada. Companies are required to provide a NUANS name search report and meet stricter criteria to ensure the name isn’t confusingly similar to existing businesses anywhere in Canada. However, federal corporations also get nationwide name protection due to this.
An Ontario corporation is incorporated under the Ontario Business Corporations Act (OBCA). The business will only be able to operate solely within Ontario and will be governed by provincial legislation. The name of the company is protected within the Ontario province and the office should be located within that province.
However, provincial incorporation does not limit your company’s ability to conduct business in other provinces and territories, this can be achieved through an extra-provincial registration. In the next section, we will understand the pros and cons of Ontario incorporation.
Simple and straightforward
Setting up a corporation to operate in Ontario is a straightforward and fast process. For faster registration Ontario incorporation is better since the name approval happens the same day you apply.
Tax benefits
Ontario incorporation pays lower taxes than personal income.
Liability protection
This is a separate legal entity, meaning it separates personal from business debts and legal obligations. This is important for companies since business owners will not be held responsible.
Name protection
Your company name will be protected at the provincial level of Ontario. No business in Ontario can register with the same name as your business after registration.
Annual Compliance
Provincial corporations usually have less compliance requirements than federal corporations and can be an ideal option for startups who are looking to manage things on their own.
Your company name is only protected in Ontario. Other companies in other provinces or territories can use your company name since it is not nationwide protected.
Higher costs
Setting up an Ontario corporation is more expensive than a federal corporation. It also has ongoing costs which can be a lot higher if an entrepreneur did not prepare for it. Government fees for incorporation in Ontario is CA$300. There are also fees for every corporate change, such as updating directors or your business address.
No Uniformity Across Provinces
Each province has its own business corporation act, rules, and filing systems. This can make expansion across provinces more cumbersome than starting with federal incorporation, which provides a centralised legal framework.
So, which option is right for your business? To help you better choose the right option for your business, you can weigh both the pros and cons of each corporation. You can ask yourself these questions to help you make the right choice; where do you want your business to operate? Do you have expansion plans? What is your budget to incorporate a business? What kind of name protection do you want for your business? Are you operating in a regulated profession?
By answering these questions, you will end up choosing a corporation that will suit your business and start the registration process. Icon Offices offer both federal and Ontario corporations, which is fast and effective.
We also offer virtual office service. The address can be used as the registered office address of the company and correspondence address for all directors. Director(s)' residential addresses do not appear on the public register and are kept private.
We also offer extra-provincial registration for federal incorporation. After incorporation, businesses don’t have to worry about compliance because we offer free lifetime support for your company.
For more information on federal and Ontario corporations, contact us at [email protected].
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