Nelligan O'Brien Payne gratefully acknowledges the contribution of Stéphane Serafin, Student-at-Law in writing this blog post.
Selecting the right corporate vehicle – sole proprietorship, partnership, corporation, etc. – is just one of the choices an aspiring businessperson must make. In Canada, this choice is complicated by the existence of legislation allowing for the incorporation of a business at both the federal and provincial levels. Indeed, while most other federations allow for the incorporation of businesses under legislation passed by their federated entities (i.e. provinces or states), Canada differs from most of them, including the United States, in also allowing for the incorporation of businesses under a federal law.
For a person residing in or intending to operate his or her business out of Ontario, this means that your two most likely options for incorporation will be the Business Corporations Act in Ontario and the Canada Business Corporations Act at the federal level. While these laws are very similar in many respects, there are also important practical and legal implications to choosing one or the other. Here are five of these differences ranked in no particular order:
1. Corporate Name Recognition in Other Provinces
Prior to obtaining a licence to operate in another province, a business incorporated under the Business Corporations Act in Ontario may face hurdles that don't apply to a business incorporated under the Canada Business Corporations Act. Because of the name approval process used at the federal level, a federal corporation's name is considered protected in all other provinces except Quebec, and is therefore very unlikely to run afoul of the licensing authorities in other provinces. This may not be the case with a business incorporated under the Ontario Business Corporations Act.
2. Filing Requirements and Extra-Provincial Registration
However, the filing requirements for a business incorporated under the Canada Business Corporations Act may be more onerous for a corporation that only carries out its business in Ontario. In addition to the filing requirements found in the Canada Business Corporations Act itself, federally-incorporated businesses carrying out business in Ontario need to comply with the filing requirements of the Corporations Information Act and the Business Names Act in Ontario.
3. The "Canada" Brand
Many sources often cite the greater recognition and prestige of "Canada" as an advantage of incorporation under the Canada Business Corporations Act. This is particularly true for any corporation that intends to carry out business in other countries where the individual Canadian provinces may not be well known.
4. Head Office Location
Under the Business corporations Act in Ontario, a corporation is required to have a registered office in Ontario. For the purposes of the Act, that office is deemed to be the corporation's head office. No such requirement exists under the Canada Business Corporations Act.
5. Differences in Shareholder Class Voting Rights
Both the Canada Business Corporations Act and the Business Corporations Act in Ontario provide normally non-voting shares the right to vote in certain circumstances, usually when the rights attached to that particular class of shares are affected. However, and despite significant overlap, both Acts do not grant this right in the same circumstances. These differences may become important to any corporation looking to create non-voting preferential share classes.
These are just a few considerations, many of which, like the differences in shareholder class rights, can be quite subtle and technical. Careful consideration of all relevant factors, including the particulars of your business and its objectives, is necessary before making an informed choice. As always, proper legal advice is indispensable.