If you’re considering expanding your business operations into Canada, one of the first decisions you’ll face is whether to incorporate federally or provincially. Canadian businesses can be formed either under the federal Canada Business Corporations Act (CBCA) or under the corporate legislation of a specific province or territory. Both options provide a solid legal foundation for doing business, and the best choice depends on your company’s goals, structure, and strategic plans.
Similar Legal Frameworks, Minor Differences
Whether you incorporate federally or provincially, the legal protections and business structures are fundamentally similar. There are no significant cost differences between the two options. However, there are key distinctions worth considering:
- Federal Incorporation offers broader protection of your corporate name across Canada.
- Provincial Incorporation, such as in Ontario, can often be completed faster and more efficiently, especially when federal director residency requirements cannot be met.
It’s worth noting that even with federal incorporation, name protection is limited unless you also pursue trademark registration. For companies seeking strong brand protection, registering a trademark is essential regardless of incorporation level.
Director Residency Requirements
A notable limitation with federal incorporation is the CBCA’s requirement that at least 25% of directors must be “resident Canadians.” If a corporation has fewer than four directors, then at least one must meet this requirement.
A “resident Canadian,” under the CBCA, includes:
- Canadian citizens ordinarily residing in Canada;
- Permanent residents who normally live in Canada and have not lost their status;
- Certain classes of Canadian citizens not residing in Canada but falling under specific exemptions outlined in federal regulations.
However, simply holding Canadian citizenship is not enough if the individual does not have substantial ties to Canada such as a home, employment, or bank account — factors courts look at when determining residency.
Exemptions for Certain Classes of Canadians Abroad
The Canada Business Corporations Regulations (CBCR) provides exceptions for Canadians abroad who meet specific conditions. These include:
- Government employees posted abroad;
- Employees of Canadian-controlled companies working overseas;
- Canadian students enrolled full-time at foreign universities (within 10 years);
- Canadians working with international organizations;
- Retired Canadians (over 60) who lived in Canada and moved abroad within the last 10 years.
While helpful in theory, most international businesses in the early stages of expansion into Canada do not have access to individuals who qualify under these limited exemptions.
Provincial Incorporation: A Flexible Alternative
For companies that do not have a Canadian director or want a faster path to incorporation, provincial incorporation is often more practical.
Provinces including Ontario, Alberta, British Columbia, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland & Labrador, and Saskatchewan have removed the resident Canadian director requirement entirely.
Among these, Ontario is a preferred jurisdiction due to:
- Its status as Canada’s most populous and economically active province;
- Streamlined incorporation procedures;
- Fewer restrictions on naming your corporation (as long as it does not duplicate an existing name exactly).
Summary
Incorporating in Canada is a key step for many international businesses seeking to establish a local presence. While federal incorporation offers some advantages, many companies find that provincial incorporation especially in Ontario offers a simpler and equally effective route into the Canadian market.
If you’re considering expansion into Canada and need legal guidance on the right corporate structure or regulatory obligations, Hadri Law is here to help. Reach out at 437‑397‑2374, email contact@hadrilaw.com, or book a no-cost consultation.