Should I incorporate Federally or In Ontario?

September 7, 2022 | By admin

Introduction

When you decide to incorporate, one of the very first things you will need to decide is where you want your corporation to be incorporated.

In Canada you can incorporate provincially pursuant to the laws of the applicable province/territory where you are carrying on your business or you can incorporate federally pursuant to the laws of the federal government. For example, if you are carrying on business in Ontario, you can incorporate an Ontario corporation or you can incorporate a Federal corporation and file an Initial Return Extra-Provincial Domestic Corporation with Share with the Ontario Ministry of Government and Consumer Services. If you are operating your business in Nova Scotia, you can incorporate a Nova Scotia corporation or you can incorporate a Federal corporation and file the applicable form for your Federal corporation to operate in Nova Scotia.

Corporations incorporated outside of Canada can also register for an Extra-Provincial License in the province or territory they wish to carry on business in.

So, how do you decide whether to incorporate provincially or federally?
In this article, we will outline the differences between incorporating an Ontario corporation and a Federal corporation to help you make the decision. And if after, reading this article, you still can’t decide, just flip a coin!

Governance and Filing

The Ontario Ministry of Government and Consumer Services oversees the creation of Ontario corporations and the compliance of Ontario corporations with the Ontario Business Corporations Act and its regulations. You can access information about your corporation and complete filings with the Ministry through the new Ontario Business Registry.

Corporations Canada oversees the creation of Federal corporations and compliance of Federal corporations with the Canada Business Corporations Act and its regulations. You can access information about your corporation and complete filings for your corporation through the Corporations Canada Online Filing Centre.

Every other province or territory has its own governing legislation related to the creation and compliance of corporations the creation of corporations. While each jurisdiction has different laws and different public registries, there are a number of similarities.

Privacy

In this category, Ontario corporations win.

As we mentioned above, Ontario corporations can be accessed through the Ontario Business Registry and Federal corporations through the Corporations Canada online filing centre and database. (Want to know more about the OBR? Read our article, or download our free guide.)

Certain information about your corporation (whether incorporated federally or provincially), including the registered address and names and address for service of directors) is public information.

With Federal corporations, this database of public information is freely searchable. An unintended consequence of Corporations Canada’s freely searchable database has been the publication of this information by certain third parties on their own websites, making the information searchable via independent search engines like Google.

For Ontario corporations, while certain information is public information, in order to obtain information on the registered address of the corporation or the names and addresses for service for each director and officer, you have to obtain a corporate profile report from the Ontario Ministry and there is a fee associated with obtaining this report. The paywall offers Ontario corporations some additional privacy.

Name Protection

In this category, Federal corporations win.

When you incorporate an Ontario corporation, the name of your company is protected in Ontario. This means that you may have a claim against another Ontario business that registers a name that is similar to your name after your business has been registered.

BEWARE: Ontario corporations with similar names won’t be prevented from registration. It is your responsibility to insist that the similarly named business change its name following its registration.

Federal corporations get broader name protection. When you incorporate a Federal corporation, you are reserving your name across all of the provinces and territories in Canada. If, for example, you register a Federal corporation, you could have a claim against someone who registers a similar name for their business in British Columbia. If you register an Ontario corporation, someone could register a business in British Columbia with a similar name.

BEWARE: It is more difficult to get your name through on a federal level because your NUANS report will be scrutinized by a Corporations Canada examiner before your corporation will be registered and a notice of deficiency will be sent to you if the examiner sees similar names in your NUANS report.

Where You Can Carry on Business

In this category, federal and provincial corporations are equal.

Carrying on business refers to where you are physically located carrying on your business – where you have a permanent business establishment, where your employees are located, where your office/restaurant/store is located, and where your business has an interest in real property.

If you incorporate an Ontario corporation you have the automatic right to carry on your business within Ontario. This does not restrict you from selling your goods or services across Canada or the world. If, for example, I am selling widgets from my house in Ontario, I will need an Ontario corporation or Federal corporation (and the Ontario extra-provincial registration) but I can sell my widgets to anyone in the world.

BEWARE: You may have to obtain other licenses for your Ontario business in order to legally carry on your particular business in Ontario. For example, if you wish to sell liquor at your restaurant business, you will need to have a liquor license from the AGCO.

Contrary to popular belief, incorporating a Federal corporation does not mean that you can carry on business in any province. Every Federal corporation that wishes to operate its business in a particular province or territory must file certain information with the applicable provincial or territorial government and pay applicable government fees if any. There is no fee to file the Initial Return Extra-Provincial in Ontario if your corporation was incorporated somewhere in Canada.

Both federal and Ontario corporations can register to carry on business in other provinces or territories by filing the applicable extra-provincial forms. With a Federal corporation, however, since your name is already reserved across Canada, you may not have to obtain a NUANS report as part of the extra-provincial filing. If an Ontario corporation wishes to carry on their business in British Columbia and the name is already registered there, the Ontario corporation will have to operate their business in British Columbia under a different name.

Time to Incorporate

In this category, Ontario corporations win.

When you submit your articles of incorporation for an Ontario corporation through the Ontario Business Registry, your corporation will be filed automatically, and the Certificate and Articles of Incorporation will be emailed to you within minutes.

With Federal corporations, an examiner will review the NUANS report before accepting your corporation for registration. Once your articles are submitted to Corporations Canada, it can take 3-4 business days to receive your Certificate and Articles of Incorporation. In addition, if the examiner notices an issue with your proposed name, they will send you a notice of deficiency and give you the opportunity to amend your proposed name or defend the proposed name of your corporation.

If you want a Federal corporation and are in a rush, Corporations Canada does offer an expedited service for an additional fee of $100. If you pay the expedited fee, your corporation will be registered within 1 business day (subject to any issues related to your proposed name).

In addition, with a Federal corporation, you will have to file the Form 2-Extra Provincial. This can be done with your application for a Federal corporation through Corporations Canada. The Ontario corporation number that is generated by the Ontario Ministry as part of this registration will usually be issued within 2 business days.

BEWARE: Obtaining the extra-provincial registration in other provinces can take longer and generally, additional fees will apply.

Costs of Incorporating

In this category there is no clear winner although Federal corporations are cheaper to start.

	Ontario	Federal
Initial Government Filing Fee	$300	$200 (or $300 for expedited service)
NUANS Report (Govt Fee)	~$13 – $100	$13
Forms to effect changes to Directors/Officers/Registered Address	No Govt Fee	No Govt Fee
Annual Returns	No Govt Fee	$13
Extra-Provincial Registration for Ontario	N/A	No Govt Fee

Government Filing Fee and NUANS

The government filing fee for incorporating an Ontario corporation is $100 more than the filing fee for Federal corporations. In addition, obtaining an Ontario NUANS search is generally more expensive for an Ontario corporation as you will have to obtain this NUANS search from a lawyer or another third-party service provider who may charge additional fees.

Corporate Changes

When there are changes to the registered address of your corporation or directors or officers of the corporation (due to a resignation or subsequent appointment), certain filings need to be completed and can be completed through the Ontario Business Registry or Corporations Canada Online Filing Centre. For Ontario and Federal corporations, there is currently no government fee associated with these specific filings.

BEWARE: Filing the forms as mentioned above is not sufficient to properly paper the changes. Formal resignations, resolutions of the directors or shareholders of the corporation and updates to the registers and ledgers of your corporation should also be prepared and inserted into your corporate minute book.

Annual Returns

In addition, every year both federal and Ontario corporations have to file an annual return (which is different than filing a corporate tax return) with the applicable ministry. With Federal corporations, the fee to file an annual return is $12.00. For Ontario corporations, there is no government filing fee.

Extra-Provincial

If either a Federal corporation or Ontario corporation wishes to carry on business in another province or territory, they will have to file the applicable form with the governing jurisdiction and pay the applicable fees. A Federal corporation may end up paying slightly less in connection with these registrations since they may not be required to obtain a NUANS report.

Professional Corporations: Restrictions on Jurisdiction of Incorporation

When choosing which jurisdiction for your corporation, it is important to note that you may not have a choice. Regulated professionals wishing to operate their business through a corporation must do so through a professional corporation. By law, Ontario professionals must incorporate an Ontario corporation and may not incorporate federally. Similarly, real estate professionals wishing to operate through a personal real estate corporation may only incorporate Ontario corporations.

Residency Requirements

For Federal corporations, at least 25% of the directors of the corporation must be resident Canadians. Resident Canadian means an individual who is a Canadian citizen or permanent resident who is ordinarily resident in Canada. However, a permanent resident will not qualify here if more than one year has passed since the time that he/she/they became eligible to apply for Canadian citizenship. Note that there is no requirement for any of the shareholders of the corporation to be resident Canadian, although different tax rates may apply for a non-Canadian-controlled corporation.

For Ontario corporations, there are no residency requirements for directors.

Transferability

If you are currently living in Ontario but think you may move to another province to carry on your business, you may wish to start with a Federal corporation because Federal corporations are slightly more transportable. As mentioned above, with a Federal corporation, your name is already reserved across Canada. To begin operating in another province, you can simply change the registered office of your corporation to the address where you move and file the applicable extra-provincial registration.

What should I consider when deciding which jurisdiction I want to incorporate within?

There are many different things you will need to consider when incorporating your business. Some questions you may want to think about are:

Where do you plan on conducting business with your corporation?
How much protection do you want for your business name?
Do you plan on just working provincially? Or are you hoping to carry on business in more than one province or territory?
What plans and goals do I have for this corporation?

There is a lot more to think about when it comes to deciding which jurisdiction works best for your corporation. It is important to ask questions to ensure that you are making the right decision for yourself and your corporation before submitting any applications.

At Ordower Law, we can assist with your incorporation needs. Feel free to give us a call at 416-849-1900. You can also book a call with us below.