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The Big Question
New entrepreneurs frequently consult us for direction in the incorporation process. The dominating question is always whether to incorporate federally through Industry Canada or through a provincial authority, and why one over the other?
The subject of which is better is arbitrary in the legal community. Arguments against federal incorporation are frequently related to difference in cost and the time required to complete the initial setup. Others note that provincial registration is required where business operations occur, and so the additional federal incorporation is redundant.
This article discusses the pros and the cons of each process, but concludes ultimately in favour of federal incorporation.
Provincial Incorporation
Each province has the legal authority delegated by its constitution and other applicable corporations acts or laws, to allow corporations to exist as it approves.
As such, each province treats for-profit and not-for-profit corporations, as well as limited liability partnerships, sole proprietorship businesses and other common forms of business as their law prescribes, which does vary somewhat from province to province.
In another light, applicable taxation treatment is usually dependent on the type of business registration, so it is very important that business owners consult with consultants, accountants and tax planners to avoid costly legal and financial mistakes.
Provincial incorporations cost between $50 and $150, which is cheaper than federal incorporations at $200, if filed online. Unlike with Corporations Canada, the division of Industry Canada that handles business registration and management, most provinces are not equipped with robust online systems that allow quick access and self-serve options for managing registrations. Many provinces require paper forms, which result in long delays due to post mail.
Federal Incorporation
Federal business registrations are governed by a single law, above all corporations, those for-profit and not-for profit. The Canada Corporations Act is a single piece of legislation that has been well-maintained and continually modernised.
As such, any business in Canada that will operate in multiple provinces is encouraged to avoid the burden of two separate provincial incorporation laws, which are typically obsolete by the high bar of the federal Act. Those companies seeking to export outside of Canada may be required to register for a federal incorporation regardless, as some agencies and departments will require.
Entrepreneurs benefit from operating under a single law that allows them to expand into other provinces and into foreign markets without additional headaches after the fact. Moreover, a quick internet search will reveal a substantially higher quantity of quality information on federal incorporation, interpretation and rulings for legal issues, Canada-wide compatibility and other favourable content.
A one-time registration fee is $200, if completed online and annual filings cost about $20. Business owner and their agents, such as accountants, consultants and lawyers are able to access the data from remote offices with ease, which makes the process simple to file memos and retrieve historical documents easily and at no cost.
The federal process even allows for simultaneous registration at the provincial level, at the same time and through your federal registration. This is beneficial, as it automates the provincial registration portion for most provinces. Furthermore, your provincial registrations are connected to the overarching federal incorporation in the filing, which means less documentation preparation and less time and dollars spent with legal services.
Conclusion
Incorporation is not complicated for experts or technically-experienced masters. Nonetheless, business registration is not a recommended do-it-yourself activity for any entrepreneur, because the margin of error is simply too high. Although incorporating federally reduces the burden and simplifies the process, there are many critical considerations that are not covered in any of the guiding documentation. As such, we recommend you consult a firm like ours for guidance through or outsourcing of the process.
