Anyone looking to incorporate will quickly conclude that its possible to incorporate either federally, under the Canada Business Corporations Act, or provincially, under the Québec Business Corporations Act. While the two Acts are substantially similar, and most entrepreneurs will be well served by either a federal or a provincial corporation, there are some instances when one may be more favourable than the other. So how do you decide which jurisdiction to choose? Here are some factors to consider:
- Will your business have locations only in Québec? If the answer to this question is yes, chances are a provincial corporation is right for you. If your business will have locations in other Canadian provinces or territories, you may want to consider a federal corporation. Corporations must register in each province in which they do business, and many Canadian jurisdictions offer a simplified (and in some cases less costly) registration procedure for federal corporations. If your business will have locations in other countries, or frequently do business with parties in other countries, a federal corporation may be advantageous because official government documents are issued in both English and French. The government of Québec issues such documents only in French. A provincial corporation may, in certain circumstances, be required to provide official translations, which can sometimes be costly.
- Will you be the sole director and shareholder? With a provincial corporation, you will benefit from more simplified and less formal procedures, namely when it comes to annual meetings or the dissolution of the corporation.
- Will the corporation’s directors be Canadian residents? There is no residency requirement for the directors of a provincial corporation, whereas at least 25% of the directors of a federal corporation must be Canadian residents. For federal corporations with less than four directors, at least one must be a Canadian resident.
- Do you already own a corporation? If so, it would generally be best to incorporate the new corporation in the same jurisdiction as the existing one. If you one day decide to merge the two entities, the process will be easier and less costly if they are incorporated in the same jurisdiction.
It is worth noting that since a federal corporation whose head office is in Québec will need to register in that province, the overall cost of setting up a federal corporation is greater than a provincial one due to the additional registration and government fees. A federal corporation is also slightly costlier to maintain because it will need to file annual declarations both federally and provincially.
Have you decided which jurisdiction is right for you? Would you like more information? Book a consultation with one of our corporate lawyers.
Author: Laurie Meitin