Choosing a Jurisdiction
Once I decide to incorporate, where should I incorporate?
In Canada, there are at least two choices in every province. In Ontario there is the Federal jurisdiction or the Provincial one. The former is under the Canada Business Corporations Act and the latter, in Ontario, under the Ontario Business Corporations Act.
Does it matter where I am carrying on business?
If your business is going to be limited to Ontario then there is less need to consider a Federal company. However, if you envision or plan to carry on your business in another province i.e. Gatineau, Quebec, then a Federal company might be more suitable. A Federal company has the right to carry on business in any province in Canada. A Federal company cannot be refused registration because its name is similar to that of an (existing Provincial corporation residing in that province) Ontario corporation whereas a Provincial corporation can be refused (a continuance under their current name) registration. This would necessitate a name change if you expanded your business outside of Ontario in the future, which might not be feasible, hence a Federal company provides more mobility.
Does the name I want affect my decision where to incorporate?
Both the Federal as well as Provincial governments regulate the granting of a name to a corporation. A Federal name must clear all Provincial and Federal data bases (as well as trademarks). Hence, if there is a company in Manitoba with a similar name you will not be able to use that name in Ontario for a Federal corporation. If, however, you incorporate an Ontario corporation (only have to clear the Provincial data base) the Manitoba Corporation will not be a bar to that name. However, you might have a problem if you want to expand into Manitoba at a later date. Further, under the Federal jurisdiction there are examiners who must approve your name in advance. In Ontario there are no examiners and therefore it is easier to incorporate a similar sounding name. This in itself might not be a good thing, as the similar sounding corporation could have certain claims against you.
Do the Directors have to be Canadian?
In Ontario the majority of directors must be Canadian whereas a Federal corporation only requires 25% to be Canadian. If there are less than four directors only one must be Canadian. If your company is going to be a wholly owned foreign subsidiary or is going to have a majority of foreign ownership that entity might wish to control the board, and in that case, a Federal company would provide for this.
Is an Ontario Corporation able to move to another Province?
Moving a corporation from one jurisdiction to anther is called Continuing. In effect, you file documents to leave Ontario and new documents of the province that you are moving to, i.e. British Columbia. An alternative method is to apply for an extra Provincial license from the new province i.e. British Columbia, to operate in that jurisdiction. Carrying on business means a physical presence i.e. an office, plant etc.; it does not mean conducting sales in another province. If you are planning to operate in Quebec in the future or start your business in Quebec (and do not want to incorporate in Quebec) then it might be advisable to incorporate a Federal company, as a Federal company does not have to continue into any other jurisdiction.
Is there a cost difference between a Federal and Provincial Corporation?
The government fee to incorporate federally is $200 whereas an Ontario corporation costs $360. However, the Federal corporation requires an annual filing which costs $40 if done by paper and $20 if done electronically on-line. Hence, the $160.00 in savings is used up either within the first four or eight years. There is also the nuisance factor of having to remember to do your annual filing. Furthermore, if you forget to file for three years, Industry Canada, which governs Federal corporations, will dissolve your Federal corporation without any notice to yourself.
Are there any other factors to consider?
There are other differences between the two governing Acts (Canada Business Corporations and Ontario Business Corporations Acts) such as the rights of minority shareholders, but these are more complex issues that should be discussed with a lawyer.