Federal vs. Provincial Corporation: Which Is Best for You?

Whether you are an established organization or just starting out, the decision between a federal and provincial corporation is very important. It can significantly impact your business's path, legal obligations, and financial standing. In the Canadian business landscape, federal and provincial corporations have unique advantages and nuances. Understanding these differences is crucial in determining the best fit for your business.

Federal Corporations

 

A federal corporation, established under the Canada Business Corporations Act, is a legally recognized entity that operates throughout Canada.

Federal corporations are obligated to adhere to all federal regulations and compliance measures. They are required to complete annual filings to maintain transparent corporate records that are accessible to the public. They also are required to ensure that at least 25% of their board of directors are Canadian residents.

Additionally, federal corporations are required to have their registered office in Canada and hold their shareholders meetings in Canada unless another place to hold shareholders meeting is provided in the by-laws or agreed upon by shareholders.

 

Advantages of a Federal Corporation

 

While the discussion of federal versus provincial corporations ultimately depends on individual business goals, federal corporations offer distinct advantages.

Incorporating and registering your company can be done relatively with ease. Incorporation is different from registration – a federal corporation conducting businesses in provinces must register with the relevant provincial authorities (often called corporate registry/business registry). “Conducting business” typically includes running a business there, having a physical address, a post office box, or a phone number, as well as providing services or products for profit.

A federal corporation can choose to go through fast-tracked registration procedures in certain provinces - Corporations Canada partners with Ontario, Nova Scotia, and Newfoundland and Labrador for registration of federal corporations so that you can register your corporation in these provinces when you incorporate your federal corporation online. However, if your federal corporation intends to operate in provinces without such arrangement (like Québec), it must register with the relevant provincial corporate registry (such as Company Registry of Quebec).

To illustrate, under laws of Ontario, a corporation incorporated outside the province—including a federal corporation and corporations under laws of other Canadian provinces such as Alberta or British Columbia—can conduct business in Ontario as long as it registers with the province’s business registry within 60 days of beginning operations there. Similarly, under laws of Quebec, a corporation incorporated under laws of another jurisdiction (including corporations under federal laws) conducting business in Quebec must register with Corporate Registry of Quebec within 60 days of commencing activities in Québec by filing a declaration of registration of a legal person to the entity.

As mentioned previously, incorporating your company federally allows you to register at the same time in certain provinces. This permits you to set up your business in certain parts of the country without necessitating registration in these provinces separately.

Another significant benefit is name protection. Federal corporations enjoy legal protection of their name across Canada, preventing other entities from using similar or identical names. This nationwide protection can be invaluable in creating and maintaining a consistent brand image.

Lastly, federal corporations provide access to federal service points and various online services, boosting their ease of operations. For instance, digital streamlining processes can expedite incorporation, annual reporting, or maintenance of share capital, further supplementing their gains.

Provincial Corporations

 

Provincial corporations, by contrast, exist under provincial or territorial laws. This means they typically operate within the borders of the originating province or territory. However, they have the option to expand their operations by registering in additional provinces or territories, although this process can be slightly more complex and costly.

One significant advantage of provincial corporations is the flexibility in regulations. Essentially, provincial corporations are generally subject to less burdensome obligations. Another advantage of provincial corporations is its ability to obtain provincial fundings or grants. Each province within Canada has its own set of government funding programs available exclusively to local businesses. Some of these provincial funding programs require applicants to be a corporation incorporated in that province.

Duties of a Provincial Corporation

 

Provincial corporations carry certain responsibilities, primarily abiding by the regulations and directives of the region they serve. For instance, corporations incorporated provincially must maintain a registered office within that province and uphold corporate records, including minutes of meetings and resolutions at that registered office. They must also hold annual meetings in that province unless their by-laws provide otherwise.

Benefits of a Provincial Corporation

 

Opting for a provincial corporation offers several benefits compared to federal corporations. Some find provincial corporations easier to establish, and they may be more suitable for businesses operating solely within a particular province. In addition, qualifications such as the requirement of a Canadian resident on the board isn’t applicable for most provincial corporations (such as Quebec). However, the decision between a provincial and a federal corporation should consider the specific goals, size, and operational scope of the business.

Key Differences: Federal vs Provincial Corporations

 

Examining the main distinctions between federal and provincial corporations helps businesses make a strategic choice aligned with their specific goals.

Corporations Act: Federal vs. Provincial

 

Federal corporations operate under the Canada Business Corporations Act, a comprehensive legal framework with nationwide jurisdiction. The Act has provisions for name protection and preferred access to federal services, elevating these corporations' visibility and legal backing.

In comparison, provincial corporations are governed by the provincial corporation legislations. These offer region-specific regulations that can seem more manageable and less costly to maintain. They have requirements such as maintaining a registered office in the province. They come with the advantages of potential ease in establishment and appeal for businesses operating solely within their province.

Filing Obligations: Federal vs. Provincial

 

Federal businesses must file annual returns with Corporations Canada, along with the payment of required fees. In addition, they will also need to file provincial filings for the provinces they are operating in. While this requirement promotes transparency and regulatory compliance, it can also add extra burden for businesses.

Provincial corporations adhere to their local rules and mandates concerning annual filings. These corporations, respectively, need to only file annual reports to their provincial government bodies.

Contact Lazarus Today To Learn More

 

Choosing between federal and provincial corporations is not a one-size-fits-all answer. It is a strategic decision based on a business's specific needs, goals, and target demographic. To learn more about the differences between federal and provincial corporations and determine which may be the better option for you, contact the legal team at Lazarus to speak with our experienced attorneys today.