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What Is the Difference Between Provincial and Federal Incorporation?

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Question: What Is the Difference Between Provincial and Federal Incorporation?
Answer:

There are two types of incorporation in Canada; provincial and federal incorporation.

The main difference between the two is that federal incorporation gives your business increased business name protection and wider rights to carry on business.

Federal incorporation of your business means that you will be able to do business all across Canada under the same business name, even if some other company is already using a similar name in some province or territory.

This is not the case with provincial incorporation. When you incorporate your business in a particular province or territory, you are only entitled to operate your business in that jurisdiction and have no name protection outside that province or territory.

Sure, if you incorporate your business in Ontario, and then want to do business in Manitoba, you can register your Ontario corporation in Manitoba so you can do that (see Extra-Provincial Registration for Corporations), but there's no guarantee that there won’t be other businesses of that name or a similar name operating there.

In their Frequently Asked Questions on Federal Incorporation, Corporations Canada points out that federal incorporation has a cachet that provincial incorporation doesn't and gives a company global recognition.

The Downside of Federal Incorporation

When you read the above information about the difference between provincial and federal incorporation, you may wonder why everyone who wants to incorporate in Canada doesn't just incorporate federally.

I suspect that's because of the downside to federal incorporation; it takes extra work and money.

First, although provincial and federal incorporation is an "either-or" proposition (you don't need to federally incorporate and provincially incorporate), if you choose federal incorporation, you will need to register your business in any province or territory where you carry on business.

(Note that currently, when you complete the federal incorporation process through Corporate Canada’s Online Filing Centre, you will have the option of filling out extra-provincial registration forms for Saskatchewan, Ontario, Nova Scotia, and Newfoundland and Labrador. You will still have to contact the Provincial Registrar of each province or territory other than these where you plan to do business, and register extra-provincially with them.)

Second, federal incorporation will involve more paperwork every year, as you will need to comply with the corporate filings required by the federal Director of Corporations Branch and all filings required by the provinces that your corporation is registered in.

And third, federal incorporation may cost more. While the current filing fee for federal incorporation (filing Articles of Incorporation) is $200 if filed online through Corporations Canada's online Filing Centre ($250 if filed through other means), and the cost of a NUANS Name Search Report is approximately $75 per search, there may be additional fees resulting from the need to register your corporation extra-provincially and extra costs incurred because of the additional annual paperwork required.

The Bottom Line

Federal incorporation can be an excellent choice if your business needs the nation-wide business name protection that federal incorporation provides, or if your business is or will be operating internationally. If your business is and plans to be operating primarily within one province, provincial incorporation may be enough for you. Remember, you can always use provincial incorporation now and then change to federal incorporation later (although there's no guarantee that you would be able to get or keep the same name for your federally incorporated company).

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