Clients are often surprised when I ask them whether they would like to incorporate federally under the Canada Business Corporations Act (R.S.C., 1985, c. C-44) (the “CBCA”) or provincially under Ontario’s Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”). They are either surprised that the provincial option even exists, or they are surprised that I would consider provincial incorporation as they think that federal must always be better. However, both are good options and only by examining a client’s circumstances can a determination be made.
Professional Corporations usually must be Provincial
First, it should be noted that Professional Corporations in Ontario usually can only be incorporated under the OBCA. A professional corporation is a corporation that provides professional services and that is regulated by a governing professional body such as the Law Society of Ontario, the Royal College of Dental Surgeons of Ontario, or the College of Physicians and Surgeons of Ontario. Only specific professions can use a Professional Corporation. These professions include:
- Social and Social Service Workers
More information on Professional Corporations is available here. Engineers and Architects in Ontario can incorporate federally or provincially.
Name protection and Prestige
Business name protection is the most important difference between a federal incorporation and a provincial incorporation. A federal incorporation gives your business increased business name protection and wider rights to carry on business. Federal incorporation of your business means that your corporation will have the right to carry on business across Canada under the same business name, even if some other company, such as a provincial corporation, is already using a similar name in another province or territory.
When incorporating a federal corporation, Corporations Canada thoroughly reviews your proposed business name which must be distinct and sufficiently different from already existing corporations. Proposed business names are often refused for lack of distinctiveness or that they are confusingly similar to already existing companies. For a provincial incorporation, Ontario will accept a proposed business name as long as there are no exact matches existing.
A federal incorporation is often considered to be a more prestigious registration. It is the preferred method for businesses that have international suppliers or customers.
Filings and Privacy
Filings and privacy are other important factors to consider when choosing between a federal and a provincial corporation. Both Federal and Provincial Corporations have annual filings. Your corporation must also file even if you are not active or a smaller corporation. This can be problematic as your corporation may be dissolved if it fails to file its Annual Returns. Moreover, should your corporation own property and it be dissolved, that property could escheat to the Crown, meaning it could become property of the government.
More information on the Provincial Annual Return can be found here. A Notice of Change only needs to be filed if there has a been a change to the Board of Directors, changes the Corporate Officers, or the physical location of the company.
Provincial corporations provide more privacy compared to federal corporations. For federal corporations, a register of the company’s Registered Office Address, Directors, Annual Filings, and Corporate History is publicly available online. Should a Director list his home address as his address for service for a federal corporation, this address will be publicly available online. Such information is also available for provincial corporations; however, this information is not publicly available online. Rather, a person inquiring about a provincial corporation must pay a third-party company to create a search report for them.
A federal incorporation is cheaper than a provincial incorporation. Although professional fees will be the same for both a federal and a provincial incorporation, a provincial incorporation costs about $200.00 more to incorporate than a federal incorporation. However, incorporating federally does require you to pay annual fees of $20.00 which will equal out the costs in about 10 years. As such, costs should not be a determining factor.
Extra Provincial Registration
Despite having country wide name protection, with a federal incorporation, you still need to register for extra-provincial licenses in each province you operate in. This means you also have to register in each Province or Territory where you conduct business for both a provincial and federal corporation.
Corporations are required to register in the provinces in which they will conduct business. When you incorporate your federal corporation online, you can, at the same time, register your corporation in Ontario, Nova Scotia, Saskatchewan, and Newfoundland and Labrador. This streamlines the process for Ontarians incorporating federally. This federal-provincial service (Joint Online Registration System) aims to save federal corporations time and effort; it fills out the necessary provincial forms with the information you provide during incorporation.
When carrying on business using an Ontario Corporation in another province, such as Alberta, you will also need to apply for extra-provincial registration in that province. Using Alberta as an example, your corporation is considered to be carrying on business in Alberta if:
- it solicits business in Alberta
- its name, or any name under which it carries on business, is listed in an Alberta telephone directory or appears in any advertisement with an Alberta address
- it has a resident agent, representative, warehouse, office or place of business in Alberta
- it is licensed or registered, or required to be licensed or registered, under any Act of Alberta allowing it to carry on business
- it owns land in Alberta
Corporation Canada administers the CBCA. Whereas Ontario’s Ministry of Government and Consumer Services administers the OBCA. Corporations Canada is about 12 years technologically forward compared to Ontario’s Ministry of Government and Consumer Services. Corporations Canada allows you to complete most corporate changes online. If see your corporation having significant corporate changes, incorporating federally may be preferred.
In summary, unless you are planning to carry out business outside of Ontario in the foreseeable future or you would like to ensure protection for your corporate name across Canada, a provincial corporation is likely the better option as you do not need to maintain annual filings and you have greater privacy as your information is not publicly available online. Most importantly, it is crucial that your corporation to be properly formed and constituted to ensure you benefit from the limited liability provided by a corporation. Pawlina Law can help you with both federal and provincial corporations.