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Do Business in Canada!

Part 3: Incorporating in Canada

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If you want to establish a business in Canada, your first decision will be which form of business to establish. Sole proprietorships, partnerships, cooperatives, franchises, joint ventures, and corporations are all legally recognized forms of business in Canada.

Most foreign companies choose to operate in Canada as corporations. If incorporating in Canada is your choice, you'll also need to decide whether to incorporate a subsidiary, or conduct your business in Canada directly, through a branch operation.

Subsidiaries and branches are treated differently in terms of taxes, the ability to raise capital, and the extent of the parent company's liability. Generally, a Canadian subsidiary may not be consolidated with other operations for foreign tax purposes, so establishing a branch operation may be beneficial to offset initial losses. Steven W. Smith and Frank Zaid of Osler, Hoskin, and Harcourt LLP discusses the issue of Branch versus Subsidiary in "Forms of Business Ownership In Canada".

The next decision is whether to incorporate your company federally or provincially. If you incorporate federally, your business will be empowered to conduct business throughout Canada. Although your corporation will still be subject to provincial regulations, and will have to pay a license or registration fee in some provinces, no province will be able to prevent your company from conducting business under its corporate name.

A provincially incorporated company, on the other hand, may not be able to operate under the same name in another province, if another corporation with a similar name already exists in that province.

One disadvantage of federally incorporating your company is that the composition of your company's board of directors must meet the requirements of the Canada Business Corporation Act. Under this Act, a majority of the directors of a federally incorporated company must be resident Canadians, unless "a holding corporation earns in Canada directly or through its subsidiaries less than five per cent of the gross revenues of the holding corporation and all of its subsidiary bodies corporate together, then not more than one-third of the directors of the holding corporation need be resident Canadians" (...Incorporation Kit, Corporations Canada).

Industry Canada's Small Business Guide to Federal Incorporation provides detailed information on how to federally incorporate your company. Federal incorporation costs $200 (if done online) plus fees for other steps of the process, such as a NUANS (name search).

If you incorporate your company provincially, you'll have to register and license your company through the appropriate provincial Registrar in each province and territory you wish to do business in, outside of the original incorporation jurisdiction. (See my Incorporating A Business in Canada library for information on incorporation procedures for different provinces.) So if you incorporate your business in Ontario, and then want to operate in New Brunswick as well, you'll have to register your business with the New Brunswick Registrar as well, and pay the appropriate additional fees. Incorporation fees vary from province to province.

Whichever form of business you choose, you will have to comply with the Investment Canada Act. Continue on to the next page to learn how this Act will affect your doing business in Canada.

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