Should you incorporate a federal or provincial corporation?

In Canada, corporations have the option to incorporate their business under federal law or provincial law. This article will outline the different advantages and drawbacks that come with incorporating a federal or provincial corporation in order to help corporations choose where they should incorporate their businesses.

1. Business Activities

The business activities of a corporation can quickly determine if a corporation should be incorporated at the federal or provincial level. Depending on the activities of the corporation along with where the corporation will be exercising those activities, we can assess if a corporation should be incorporated under provincial or federal law.

For instance, if a corporation plans on opening a boutique retail store in Quebec and they will only be selling in Quebec, then a provincial incorporation would be the best option for this corporation. However, if a corporation plans on opening a fashion company that will be selling clothing across Canada, then this corporation should be incorporated at the federal level.

On another note, in some cases due to the business activities of a corporation, a corporation can benefit from incorporating under provincial or federal law. For instance, corporations that are creating a product or selling a new food item would benefit from incorporating under federal laws as they most likely will be selling across Canada. Likewise, a corporation that will be opening an e-commerce store would also benefit from a federal incorporation as they would also most likely be selling their goods across Canada.

As such, it is important for corporations to evaluate where their main activities will be exercised, if they will be selling in only one province or Canadian-wide and finally if their activities require a federal incorporation versus a provincial incorporation.

2. Name Protection

The main advantage of incorporating a company at the federal level versus the provincial level is the wider name protection. This is due to the fact that any corporation that would like to incorporate under federal laws must firstly obtain a NUANS report. The NUANS database encompasses a list of all the business names along with trademarks that are already in use, in order for companies to be able to do business across Canada with the same business name. Therefore, corporations who wish to incorporate a new company not only have the benefit of having their name protected from future use but they can also ensure that their business name is not already taken by another federal corporation.

On the other hand, if a corporation incorporates under Quebec law, they are only entitled to operate in Quebec with that business name. However, they have no name protection outside of Quebec.

3. Global Recognition

The third benefit of incorporating under federal law versus provincial law is the global recognition factor. If a corporation is looking to grow a band, create a new product, open a new fashion company…etc. having a federal company allows the brand to obtain global recognition for their work.

On the other hand, corporations incorporating under provincial laws will not have this added bonus.

4. The Drawback: Fees and Filings

After reading the above, most corporations will question why a company would consider incorporating at the provincial level. The answer is that incorporating at the provincial level is less costly and requires less filings then incorporating at the federal level, namely:

• When a corporation wants to incorporate at the federal level. They must first obtain their NUANS report ($13.80), then file their articles of incorporation at Corporations Canada (200$) and then register their business in the province of their choice with additional fees at the provincial registry. Whereas, if a corporation were to incorporate under provincial Quebec laws, they will not have to obtain a NUANS report and their articles of incorporation will cost only $331.00.

• Every year a corporation must file an annual declaration at the federal registry. If you are not sure what an annual declaration, please see our recent blog post, linked here. If a corporation is incorporated at the federal level, they will have to first file an annual declaration at Corporations Canada and pay 20$ each year and they will then have to file an annual update the provincial registry where their corporation is registered. On the other hand, provincial corporations will only file 1 annual update at the provincial registry where their corporation is housed.

Conclusion

In conclusion, it is clear that both provincial and federal incorporations come with certain drawbacks and benefits. As such, we always recommend clients to properly assess what their business activities are and where they plan on exercising them. If you are unsure how to conduct this assessment, please contact us, we’re happy to help.

Corporations should also be aware that any choice made at this level is not indefinite. Corporations can, at any time, file for a business continuance to continue their corporation under a different law of choice. For more information on business continuance, you can visit our business continuance page here.

Finally, if you would like to incorporate a business, please visit our business incorporation page or contact us here.