Once you have made the decision to incorporate a business corporation in order to operate your business, the next step is to determine whether you wish to incorporate it under the provincial regime of Quebec or under the federal regime. In order to simplify the text of this article, any subsequent reference to the provincial regime should be understood to refer exclusively to the provincial regime of Quebec.
Choosing to incorporate a business corporation under either of those regimes has certain advantages and it is important to make an informed choice based on the specific needs of your business. In order to give you some food for thought, this article describes the main factors that are generally taken into account in order to opt for either the provincial or the federal regime.
ADVANTAGES OF PROVINCIAL INCORPORATION
1. Lower incorporation cost
The cost of incorporating a provincial business corporation is lower than the cost of incorporating a federal business corporation.
Indeed, to incorporate a provincial business corporation, it is only necessary to pay incorporation fees to the Registraire des entreprises du Québec (Quebec's enterprise registrar) (the "REQ"). At the time of writing this article, the incorporation fees payable to the REQ amount to $367.00 plus the legal fees for the incorporation, if applicable.
As for incorporating a federal business corporation, the first step is to submit a NUANS report which costs $13.80 in order to confirm that the corporation's name is not already in use by someone else. Then, it is necessary to pay an incorporation fee of $200.00 to Corporations Canada. Finally, if the federal business corporation does business in Quebec, it is also necessary to file a declaration of registration with the REQ which costs $367.00. In addition, other registration fees may be payable for the other provinces in which the corporation does business.
In other words, whether a business corporation is incorporated provincially or federally, the cost to incorporate/register it with the REQ is the same. However, in the case of a federal business corporation, there is also a fee to submit a NUANS report and to incorporate the business corporation with Corporations Canada.
2. Less annual administrative formalities
Although this is rarely a determining factor, it should be noted that there are less annual administrative formalities for a provincial business corporation as compared to those for a federal business corporation.
In fact, when a business corporation does business in Quebec, it must file an annual declaration with the REQ, regardless of being incorporated under the provincial or the federal regime. However, a business corporation incorporated under the federal regime must also file an annual declaration with Corporations Canada in addition to filing an annual declaration with the enterprise registrars of the other provinces in which the corporation does business, if applicable.
3. No residency and citizenship requirements for directors
Incorporating a federal business corporation comes with certain restrictions as to the residency and citizenship of directors which do not exist for provincial business corporations incorporated in Quebec. In fact, the legislation applicable to federal business corporations requires that at least 25% of directors reside in Canada and be Canadian citizens (or have permanent resident status). However, this requirement does not exist under the legislation applicable to provincial business corporations incorporated in Quebec.
ADVANTAGES OF FEDERAL INCORPORATION
1. More flexibility regarding the location of the corporate head office
Incorporating a federal business corporation provides more flexibility as to where the corporate head office can be located. In fact, the head office of a federal business corporation can be located anywhere in Canada. By contrast, a provincial business corporation incorporated in Quebec must always have its head office in Quebec.
That being said, it is important to understand that the requirement that the head office of a provincial business corporation must be in Quebec does not prevent it from doing business outside the province, whether elsewhere in Canada or even internationally. It is simply a matter of complying with certain formalities such as registering with the enterprise registrars in the provinces or territories concerned, filing certain additional declarations and paying additional fees.
2. More extensive protection of the corporation's name
The main advantage of incorporating a federal business corporation is that the name of the corporation is protected nationwide. In fact, as mentioned previously, the first step to incorporate a federal business corporation is to submit a NUANS report to confirm that the name under which the business corporation wishes to incorporate is not already in use. Thus, no other corporation may subsequently use the same name anywhere in Canada. By contrast, the name of a provincial business corporation is only protected provincewide.
It should be mentioned that both provincial and federal business corporations wishing to do business in Quebec must have a name that complies with the requirements of the Charter of the French Language, CQLR c C-11.
CONCLUSION
In conclusion, both the choice to incorporate a provincial business corporation and the choice to incorporate a federal business corporation have advantages and disadvantages. In fact, the provincial incorporation is less costly, entails less administrative formalities and does not create any residency or citizenship requirements for directors. As for the federal incorporation, it offers more extensive protection of the name of the corporation and it gives more flexibility by allowing the corporation to have its head office anywhere in Canada.
It is important to mention that the choice to incorporate a provincial or a federal business corporation is not irreversible and it is possible to subsequently request a continuation under another law.
Do not hesitate to contact us if you need more information about whether to incorporate a provincial or a federal business corporation and to help you with the necessary steps to do so.
This article provides general information only and is not intended to provide specific legal advice. You should consult a professional, such as a lawyer, before making any decision on any matter to which this article refers.
Author:
Me Petar Stoyanov
Lawyer / Founder
T: 514.316.0216 ext. 102
F: 438.476.0376
petar.stoyanov@canlexavocat.com