Canada Entity Setup

A corporation is a legal entity distinct from its shareholders. In Canada, a corporation is endowed with all the legal abilities of a natural person in that it can own property, carry on business, borrow, lend, sue or be sued. Corporations offer limited liability, ease of transfer of assets and perpetual existence. Since a corporation is a distinct legal entity, it must pay tax on its income. The corporation is by far the most common business structure in Canada.

Unlimited liability companies (ULCs) may be created by incorporating in the provinces of Nova Scotia, British Columbia, Alberta or Prince Edward Island. For Canadian income tax purposes, ULCs are treated as regular corporations, subject to Canadian tax on their worldwide income; however, for US tax purposes, ULCs may be treated either as partnerships or “check-the-box” flow-through entities, possibly offering cross-border opportunities.

A partnership exists when two or more individuals or corporations carry on business together with a view to profit. In Canada, the provinces have exclusive jurisdiction with respect to partnerships and, accordingly, each province has enacted its own specific partnership legislation. For tax purposes, a partnership is not recognized as a distinct entity. Rather, the profits and losses of the partnership flow through, on a proportionate basis, to the partners, who must pay tax on these amounts in their personal tax returns.

A foreign corporation may conduct business within Canada through a branch operation after obtaining a license or otherwise registering in the province(s) where it carries on business. Branch offices are popular because they enjoy certain tax advantages. However, because a branch office is not a legally distinct entity from the parent company, the parent will be exposed to the debts, liabilities and obligations of the Canadian operation.

Cooperatives are a unique breed in the Canadian economy, where members (users, employees, or residents) own and operate for their mutual benefit. It’s a model that fosters community and can align beautifully with businesses aiming for a collaborative approach.

No minimum capital requirement – however, there are thin-capitalization rules that could deny deductions for interest payments to specified non-residents.

Yes, but there are some limitations for certain industries.

Residency requirements can apply in certain Canadian provinces, while others do not impose any restrictions (for example Ontario). Directors are required; officers are almost always appointed, but not generally legally required. Under some corporate statutes, at least 25 percent of directors must be resident Canadians.

Most provinces and territories require a corporation registered in their jurisdiction to have an agent for service or power of attorney where the entity does not otherwise have a place of business in the province or territory. An agent for service or power of attorney is generally an individual who is 18 years or older and resides in the province or territory of registration.

A local registered address is a minimum requirement for opening a company in Canada.  

Reserve a distinctive name for the corporation – the name can also be a number issued by the Trade Register. An important aspect to consider when registering a Canadian corporation with a trading name is that the selected name must be unique at both the federal level and in the province the company will operate.

The Articles of Association are the most important documents when setting up a corporation in Canada. These must contain the following information. (1) who the shareholders and the company directors are as well as their duties and rights; (2) the number of shares issued by the company and their allotment to the shareholders; (3) the types of shares to be issued by the company and if any restrictions apply; (4) the activity or activities which will be undertaken by the Canadian corporation; (5) other clauses and specific information that the shareholders want to mention.

Unlike other jurisdictions which provide for the same company incorporation procedures on the entire territory of the country, Canada is slightly different because there are three main categories of business formation procedures: the federal one, the provincial/territorial one and the mixt one, which allows a company to operate in one or more provinces, but also at a federal level. So, the first step to consider, after deciding to set up a corporation in Canada, is to choose where it will be registered.

Once the certificate of registration of the corporation has been received, the next step is to determine and organize the structure of the company. We mention that the organization of the corporation involves written documents which are kept in a corporate minute book. Such documents are prepared and presented in a meeting held by the stockholders and the managers of the corporation.

Each corporation must register for the federal business number which is used for tax purposes by the financial authorities. For example, the federal business number will be verified for federal corporate income taxes and payroll source contributions. Furthermore, a corporation in Canada must register any non-corporate business name different from the name of the company which will be used in the province in which the activities take place. Please consider that this requirement is mandatory.

The final step is to decide the bank to work with. Canada has world class banking infrastructure that startups and hyper growth companies alike benefit from. The process of establishing a bank account can be an unexpectedly long process that many companies do not sufficiently plan for. This can include extensive application documents, notarized director documents, KYC documentation and in person signatures. Common local banks in Canada include Scotiabank, TD Bank, RBC, and HSBC.

The Canada Revenue Agency (CRA) is the federal department that collects taxes and administers tax laws for the Canadian government and for many of Canada’s provinces and territories.1 Also known as the Agence du Revenu du Canada, it also oversees a variety of social and economic benefit and incentive programs via the tax system, along with legislation that impacts international trade.

A goods and services tax (GST) number is a unique identifier issued by the Canadian Revenue Agency (CRA) that identifies businesses registered to collect and remit GST in Canada. The registration process is simple and straightforward, with registration available online through the CRA website.

Workers’ compensation in Canada is a provincial insurance scheme that provides employees with income if they experience injury or illness at work while performing valid employment tasks. Canada’s national and provincial social programs provide insurance, but each province has its own plans and benefits.

Provincial and territorial legislation requires you to register your federal corporation in each province and territory in which it will conduct business. The registration requirements are different for each province and territory.

Research industry specific requirements as certain industries (including food and drug, telecom, travel and transportation, health, banking and securities and franchise systems) impose additional restrictions, filings and/or licensing and permitting requirements on businesses operating in that industry. The government’s BizPal platform has location-specific details about the licenses and permits required for your industry.