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Should you Incorporate a Federal or Provincial Corporation?

Grinhaus Law
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By Aaron Grinhaus and Scott Kastelic

Should you Incorporate a Federal or Provincial Corporation?

By: Aaron Grinhaus and Scott Kastelic

Incorporation offers liability protection, continuity and tax benefits for people looking to start their own business. Once you have determined that incorporation is right for you, the first step in the process is deciding in which jurisdiction to incorporate. While both Federal and Provincial corporations offer many of the same core benefits, there are some key differences.

Same Core Benefits:

1) Liability Protection

Corporations are treated like a person under the law, which means that, with few exceptions, if someone sues the corporation, your personal assets will not be at risk. Both Federal and Provincial corporations offer this protection, and so regardless of which jurisdiction you select, incorporation can help ensure that your personal home and other assets stay clear of your business liabilities. Beware that if you personally co-sign on debts or loans to the business, or if you use the business and its assets for non-business-related personal use, personal liability can accrue to you. You can also be personally liable for things like excise tax (GST/HST) and employee source deductions If they are not remitted.

2) Continuity

Since a corporation is its own person under the law, if you pass away, your business continues. You may make provision in your will for the succession of your business to your beneficiaries in order to ensure that they receive the benefits of any revenues or assets the business owns.

3) Tax

Corporations can be used to help mitigate your tax burden, and are subject to preferential tax rates in many situations. call or email us to find out how you can use a corporation to help save in taxes.

Differences:

1) Name Protection

Many people believe that if you incorporate federally that the name you use will be “protected” across the country. This is not necessarily true. There is a difference between intellectual property law (ie Trademarking your business names and logos) and registering a corporation name. Simply registering the name does not protect you from other people who may wish to use similar names, but no one will be able to register the exact same name. This is only a concern if your business operates in every province. It is also important to note that, in addition to the corporation name, you may register additional business or trade names to your corporation.

Incorporating your business federally will require that your name be vetted and approved by Corporations Canada to avoid any conflicts. While it is more difficult to find a unique name for a federal corporation, some people perceive federal corporations to have more prestige as a result.

2) Location of Operations

Both Federal and Provincial corporations allow you to operate anywhere in Canada and in fact throughout the world, provided you register your corporation in any jurisdiction in which you carry out a substantial portion of your operations or have a physical location. A Provincial corporation that desires to register in another province where a corporation of the exact same name is already registered may   be forced to operate under a different name.

3) Cost and Filing Requirements

Both Federal and Provincial corporations can be filed online and they are similar in cost. However, Federal Corporation must file annual corporate returns or else risk being involuntarily dissolved.

Conversely, in Ontario, there is no annual corporate return mandate which reduces ongoing costs and administrative work. The Province of Ontario only has one mandatory filing post-incorporation which must be submitted within the first 60 days of incorporation. All other filings are typically submitted with the corporation’s tax return.

The above list is by no means exhaustive and it is important to consult with an experienced corporate lawyer to help you determine the best business structure for you. The experienced lawyers at Grinhaus Law Firm help entrepreneurs buy, sell and set up their businesses so that they are protected from liability and save on tax. For more information on this topic, call or email us to see how we can help.

PLEASE NOTE: THIS IS NOT INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. IT IS IMPORTANT THAT YOU CONSULT WITH A LICENSED PROFESSIONAL TO ADDRESS THE NEEDS OF YOUR PARTICULAR CIRCUMSTANCES.