Incorporating in Canada

General Features

Government in Canada

Canada is a federation. The federal system of government means that powers and responsibilities are divided between the federal government and the 10 Canadian provincial governments. Canada also has three territories in the far North.

In general, the federal government is responsible for matters that affect all of Canada. These include national defence, foreign policy and citizenship. Provincial and territorial governments look after such matters as education, health care and highways. They share responsibilities with the federal government in some areas, such as protecting the environment.

There is also a third level of government at the community level. This level, known as municipal (or local) government, is responsible for local matters such as policing, firefighting, snow removal and recycling programs.

Canadian citizens can vote in elections for all three levels of government.

The Parliament of Canada

Canada has a system of parliamentary government. The Parliament has three parts: the Queen, the House of Commons and the Senate. Canada’s Parliament is located in Ottawa, our national capital.

Her Majesty Queen Elizabeth II is Canada’s official head of state. She is represented in Canada by the Governor General, who must sign all federal laws. This is what makes Canada a constitutional monarchy.

The House of Commons is the national legislature elected by Canadian citizens. It is made up of 308 members of Parliament, or MPs. MPs usually represent a political party, although some members do sit as independent members of Parliament.

The Senate is the Upper House of Parliament. Members of the Senate are appointed by the Governor General upon recommendation by the Prime Minister.

With some exceptions, all laws must be approved by the House of Commons, the Senate and the Governor General before they become law. Most parliamentary legislation is introduced by the government.

How a Government Is Formed

The political party with the most members in the House of Commons takes the leading role in forming a government. If it has a majority of seats (155 or more), then it forms a majority government. If it has fewer than 155 seats, the leading party will seek the cooperation of other parties, and form a minority government. The leader of the party that forms the government becomes the Prime Minister. The party with the second highest number of seats becomes the Official Opposition. Its leader becomes the Leader of the Opposition. In the federal election of June 28, 2004, no party won a majority of the seats in the House of Commons. Canada is currently ruled by a minority government.

The Prime Minister chooses a Cabinet from members of the leading party in the House of Commons. The Prime Minister and the Cabinet must maintain the confidence of the House of Commons. This is known as “responsible government.”

Each Cabinet minister has a specific responsibility. Most ministers are responsible for the operation of one or more federal departments or agencies. The top official in each department or agency is a Deputy Minister. Deputy Ministers are usually career public servants. They are appointed by the Prime Minister.

Under the Constitution Act of 1867, the federal government is responsible for national defence, criminal law, banking, the postal system and foreign relations. It is also involved in many other areas, including transportation, communications, immigration, health and environmental matters.

Provincial Governments

Governments are formed in the provinces in much the same way as at the federal level. The party with the greatest number of seats in the provincial legislature forms the government. The leader of this party becomes the Premier of the province, who appoints a cabinet from the elected members of the leading party. Majority and minority governments are possible at the provincial level.

Provincial legislatures do not have an Upper House. In order for provincial legislation to become law, it must be approved by the provincial legislature and the Queen’s provincial representative, the Lieutenant Governor.

Provincial governments are constitutionally responsible for civil justice, property and municipal institutions. They also share responsibility with the federal government for such matters as health services, agriculture, immigration, social assistance and transportation.

Territorial Governments

The territories are not sovereign units. Their powers are delegated by Parliament, so they are subordinate bodies. The territories also have elected assemblies that follow many of the same practices as the provincial and federal governments. They hold many of the same responsibilities as provincial governments in areas such as health, transportation, social assistance and the environment.

Local Governments

Local governments are elected to manage municipalities, cities, towns and regions. Local governments do not have constitutional powers, but rather functions delegated to them by other levels of government. The leader of a municipal government is usually known as a mayor. The other elected members are councillors. Both are elected directly, and they usually do not represent political parties.

Local governments are responsible for services within a city or region, including police and fire protection, water and sewage services, recreation services and local public transportation.

Official bilingualism

Official bilingualism gives Canadians the right to communicate with the federal government, especially the courts and Parliament, in either English or French.

Incorporation Services in Canada
Incorporating a Business in Canada
The Bottom Line for Business is Better in Canada

Are you a non-Canadian interested in doing business in Canada? Canada’s open for business, and welcomes foreign investment and business immigrants.

Why do business in Canada? Why not? Operating a business in Canada is better for your bottom line than operating your business in the United States, and thanks to NAFTA (the North American Trade Agreement), you’ll still have access to the entire North American market.

Currently, according to a detailed 10-month study of international business costs in 11 countries in North America, Europe and Asia-Pacific by KMPG, Canada’s business costs are the lowest recorded in the study, and roughly 9 percent lower than in the USA after taxes depending on the industry.

One reason for this is the lower labour costs in Canada; total labor costs, including wages and salaries, statutory benefits, and other benefits, are lowest in Canada.

Canadian Provinces and
Territories – Key Facts

Provinces and Territories

This page contains links to the official government Web sites of Canada’s provinces and territories. Capital cities are in brackets.

For more provincial and territorial information, visit the About Canada section.
http://canada.gc.ca

Alberta (Edmonton)
British Columbia (Victoria)
Manitoba (Winnipeg)
New Brunswick (Fredericton)
Newfoundland and Labrador (St. John’s)
Northwest Territories (Yellowknife)
Nova Scotia (Halifax)
Nunavut (Iqaluit)
Ontario (Toronto)
Prince Edward Island (Charlottetown)
Québec (Québec City)
Saskatchewan (Regina)
Yukon ( Whitehorse)

Do Business in Canada
Incorporating in Canada

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.

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 the required disclosure of financial records. A private corporation’s financial statements must be made public if a federal corporation has gross revenues for a fiscal period in excess of $10 million, or has total assets in excess of $5 million as of the last day of any fiscal period. These gross revenues and total asset figures include those of affiliated companies and the parent company.

Also, to federally incorporate, 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”

Advantages to have a company in Canada

A Canadian company can be used to act on the behalf of offshore companies or can be used to receive and remit money to offshore companies to avoid withholding taxes in some countries (with the right structure and a clear contract there will have no income taxes or sale taxes to pay in Canada for companies used for those purposes)

Canada has a very good reputation around the world

A Canadian company can be used as nominee shareholder for other companies around the world
A Canadian company (not in all provinces) can have bearer shares
Canadian companies pay about 20% of income taxes, so the same rate than in Singapore for example.
Canada has a lot of tax treaties

Selecting a Business Structure

The right structure for your business will depend on a number of factors including legal considerations, the location of the business and taxation. Canada has three basic business structures:

Sole Proprietorship
Partnership
Corporation

In addition, there are variations of the basic business structures:

Joint-venture
Branch Office
Subsidiary

Sole Proprietorship in Ontario

Sole Proprietorship is the simpleast and the most inexpensive way to set up a small business in Ontario. One person performs all the functions required for the successful operation of the business.

The small business owner must register a business name with the province if it is different from his/her own name.

Ontario Business name registration is valid for 5 years.

Two or more persons could establish Ontario General Partnership.

It’s important to know, an owner of the small business is fully responsible for his business debts and obligations by his personal assets. Thus, the business owner has unlimited personal liability.

Benefits of Sole Proprietorships

Easy and inexpensive to set up

Flexible with little regulation

Directly controlled by the owner/operator

Minimal working capital required

Business is taxed through owner’s personal income tax, and losses can be used to reduce taxes on other sources of personal income

Wages payable to a spouse are deductible from the income of the business.

Disadvantages of Sole Proprietorships

Unlimited personal liability

Lack of continuity in business organization in absence of owner

Difficulty in raising capital

Owners are taxed at individual tax rate, which is much higher than corporate tax rate.

General Partnership in Ontario

Partnership is a simple and not expensive business structure. By carrying business for profit you and your partners create a partnership. You don’t have to sign any agreement to create a partnership. A simple verbal agreement is enough to form it. But in order to protect partners in the event of a disagreement or dissolution of a partnership, a partnership agreement should be drawn up.

A partnership located in Ontario must register its business name with the province.
Ontario Business name registration is valid for 5 years.

In a General Partnership each partner takes responsibility and becomes personally liable for all the debts and obligations of the business. Thus, each partner has unlimited personal liability including liability for the actions of the other partners.

Benefits of General Partnerships

Easy and inexpensive to set up
Flexible with little regulation
New partners can be added easily
Risks are generally shared equally among partners
Minimal working capital required
Broader management base
Partners taxed on business earnings in proportion to their share
Business is taxed through partners’ personal income tax, and losses can be used to reduce taxes on other sources of personal income
Wages payable to spouses are deductible from the income of the business.

Disadvantages of General Partnerships

Unlimited personal liability
Personal liability for the actions of the other partners (this includes actions that may be taken without partners’ knowledge)
Lack of continuity in business organization
Difficulty in raising additional capital
Partners are taxed at individual tax rate, which is much higher than corporate tax rate.

Corporation

If you are interested to get a limited liability company protecting you from the personal liability for your business, you should consider incorporation.

The corporation is the most popular business structure in Canada. It is a separate legal entity and can enter into contracts and own property in its own name, separately and distinctly from its owners. Since a corporation has a separate legal existence, it has to pay tax on its income, and therefore must file its own income tax return.

A corporation can be created under two jurisdictions:

Under provincial law – If the business will operate in only one province, the company is incorporated provincially.
Under federal law – Companies that plan to do business across Canada must be incorporated under federal law and sometimes under provincial law. Some types of business, such as banks, are subject to industry-specific legislation.

Benefits of Incorporating

Separate Legal Entity

A corporation has the same rights and obligations under Canadian law as a natural person. A corporation can acquire assets, go into debt, enter into contracts, sue or be sued, and even in some situations be found guilty of committing a crime.

Limited Liability

Shareholders of a company are not liable for the company’s debts. If the company goes bankrupt, then a shareholder will not lose more than his or her investment (unless the shareholder has provided personal guarantees for the company’s debts). A creditor cannot sue shareholders for liabilities incurred by the corporation, even though shareholders are owners of the corporation.

Lower Corporate Tax Rates

A corporation is taxed separately from its owners and generally at a lower tax rate. For example, active private companies in Ontario pay a combined flat tax of less than half that of an individual in the highest tax bracket on the first $400,000 of taxable income.

Greater Access to Capital

Raising capital is often easier for corporations than for other forms of business. For example, corporations are entitled to issue bonds or share certificates to those who invest money in the company. Other forms of business must rely solely on their own money and loans for capital.

Corporations often are able to borrow capital at a much lower rate than other forms of business. This is because financial institutions and other sources of financing perceive loans to corporations as being less risky investments.

Continuous Existence

Unlike a partnership or sole proprietorship, a corporation does not cease to exist upon the death of its owners. Ownership would transfer to the shareholders’ heirs, and the corporation would still live on. This assurance of continuous existence gives a business greater stability, allowing it to carry out planning over a longer term and to obtain more favourable financing terms.

What are the types of corporations?

In Canada there are three different variations to a “Limited Liability” company. All three have the same rights and restrictions. The difference is in the names.

A named company is incorporated with a name selected by the owner. In order to incorporate a named company you are required to perform a search of the name to confirm it is available. Incorporate a Named Company.

A numbered company is incorporated with a Number as its name. The number is assigned by the Province where the company is incorporated. Incorporate a Numbered Company.

A professional corporation is a special form of incorporation for selected professionals such as doctors, lawyers, accountants etc. Incorporate a Professional Corporation.

Joint Venture

A joint venture exists when two or more people agree to contribute goods, services or capital to one business enterprise. Canada has no specific laws governing joint ventures. Currently, joint ventures are governed by the contract between the parties involved.

A joint venture contract should outline the terms of collaboration. It defines the contributions of everyone involved, the management structure and the sharing of profits. A lawyer can provide legal help with your joint venture. You can also contact us for assistance.

What is a joint venture? How is a joint venture different from a partnership, for taxation purposes?
The term “joint venture” describes any arrangement whereby two or more persons or entities agree to contribute goods, services or capital to a common commercial enterprise. It is generally regarded as a more informal and temporary relationship than a partnership. Each co-venturer maintains the ownership of the property and is not held under joint tenancy and tenancy in common. Co-venturers do not act as agents for each other. Each co-venturer receives a share of the gross profits and shares only in the expenses related to the specific project, therefore they do not operate a “business in common.” The profits of the joint venture flow through to the co-venturers and are taxed according to its business structure.

A joint venture has different tax rules from a partnership, for example:

Unlike partnerships, joint ventures are not subject to at risk rules.
Capital Cost Allowance (CCA) treatment
A partnership calculates CCA at the partnership level. In a joint venture, co-venturers may claim as little or as much as suits their situation.
Unlike partnerships, joint ventures do not have to file information returns.

Branch Office

A foreign incorporated enterprise may decide to establish a branch office because of some of the unique tax benefits related to this business structure. Before a foreign company can open a branch office it must obtain a licence or otherwise register in the province(s) where the branch office will “carry on business”.

Can a foreign corporation conduct business in Canada through a branch operation?
Yes, a non-resident foreign corporation may conduct business in Canada through a branch office, as long as Canadian foreign investment regulations, provincial/territorial registration and licensing requirements are fulfilled.

Branch offices may be used in certain instances because of some tax advantages that the foreign corporation may enjoy. Carrying on business or conducting investment activities through a branch office allows a foreign corporation to offset losses incurred in the Canadian branch against taxable profits earned by the corporation from other sources in other jurisdictions. An examination of the applicable foreign tax law should be done to determine the corporation’s opportunities for such income tax offsets. This may be particularly important for start-up operations or during reorganizations when losses may be expected.

However, because the branch office is not an entity that is legally distinct from the foreign parent corporation, the parent company remains liable for the debts, liabilities and obligations of the Canadian branch operation. The use of a branch would also directly subject the foreign corporation to Canadian provincial and federal laws.

Subsidiary

A foreign corporation can expand into Canada by incorporating a separate subsidiary corporation under Canadian Federal laws or any of the provincial statutes governing corporations. Subsidiaries are treated the same as a branch operation. A business licence or registration may be required from any province where the company carries on business.

Individuals who are not residents of Canada CAN NOT register a Trade Name, however, both non-resident individuals and corporations can register their existing corporation in Canada or form a new “Canadian Presence” Corporation.

Directors’ Residency Requirements

When deciding where to incorporate your business, you must also consider the directors’ Canadian residency requirement of each jurisdiction. This will be particularly important for foreigners starting a business in Canada. If these requirements are not met, you cannot incorporate in that jurisdiction.

These are the current residency requirements for each Canadian jurisdiction:

Jurisdiction	Director’s Residency Requirement
Federal	at least 25% must be resident Canadians
Alberta	at least 50% must be resident Canadians
British Columbia	None
Manitoba	at least 51% must be resident Canadians
New Brunswick	None
Newfoundland	at least 51% must be resident Canadians
Nova Scotia	None
Ontario	at least 51% must be resident Canadians; however, if there are only 2 directors then only 1 must be a resident Canadian
Prince Edward Island	None
Quebec	None
Saskatchewan	at least 51% must be resident Canadians; at least one director must be ordinarily resident of Saskatchewan

Registering your existing corporation in Canada.

If your existing Company is currently active and in good standing in any jurisdiction anywhere in the world outside of Canada, then you can register this company in Canada.

Registration of your existing company in Canada is called an Extra Provincial (Ex-Pro) registration. An Ex-Pro gives you all the same rights and privileges of any other company incorporated in Canada.

Extra-Provincial Registration of Non-Resident Corporations

Our highly experienced company assists non-resident corporations with Extra-Provincial Registration.

Atrium facilitates the process of registration of your corporation in Ontario