Deciding between incorporating at the Federal or Provincial level is a key decision in the incorporation process. An Ontario based business has two main options: incorporate under Ontario legislation (the Ontario Business Corporations Act) or federal legislation (the Canada Business Corporations Act) and register to carry on business in Ontario. Historically, the two pieces of legislation were largely identical but certain procedural considerations may have favoured incorporating Federally.
Some significant changes to Ontario corporate law and the launch of the new Ontario Business Registry has led to new considerations when deciding whether incorporating federally or provincially is right for your business.
Ontario Corporate Law Changes:
Two significant changes came into force in 2021 that may provide incentive for a business to incorporate in Ontario:
Canadian Resident Directors: Ontario joined a number of other Canadian provinces by dropping the requirement that at least 1/4 of Directors (or 1, if less than 4 directors) be resident Canadians. Federal corporations maintain this requirement. This presents an opportunity for businesses that are considering doing business in Ontario but do not have a Canadian resident director.
Written Resolutions: Ontario has removed the requirement that written resolutions (director or shareholder) have 100% approval. Previously, for a written resolution to be effective it required 100% approval. Otherwise, a formal meeting must be called where the resolution could be passed (typically by majority or 2/3 approval). Now, written resolutions can be passed with the same level of approval as if they had been passed at a meeting. This is a significant efficiency gain for Ontario corporations over federal corporations, which maintain the unanimous written resolution requirement.
New Ontario Registry and Annual Filings:
On October 19, 2021 the Ontario government will launch a new online registry. Previously, filings with the Ontario government could only be done by mail, in person at provincial filing offices or through 3rd party intermediaries that charged additional fees and did not provide an “immediate” filing response. The modernization of the Ontario system neutralizes one factor which previously provided a reason to incorporate federally.
However, along with the new business registry comes an obligation to file an annual return with the registry - a return which was previously filed through CRA when the annual corporate tax return was filed. In fact, many Ontario corporations are not aware that a corporate return is required to be filed each year and it is common for Ontario corporations to neglect the required annual corporate resolutions and record keeping requirements. With the new registry, this requirement will need to be met. Federal corporations already have this requirement, so the additional filing requirements in Ontario neutralizes an advantage which Ontario corporations previously had.
Other Considerations:
There are various important considerations when deciding which jurisdiction to choose for incorporation. Having the advice of both your accounting and legal team is key to making the correct decision for your business. Additional factors include:
Existing corporations: If your organizational structure includes other corporations, it is generally recommended to incorporate in the same jurisdiction. This allows for amalgamation or other corporate reorganizations in the future which would otherwise require further corporate steps (i.e. a continuance to the same jurisdiction).
International perception: Some businesses feel that international jurisdictions recognize Canadian corporations more readily than Provincial corporations. We have no evidence to suggest that this is the case, but it can be a consideration for some business interests.
Public records: It is not yet clear how public information will be treated under the new Ontario business registry. Prior to the launch of the registry, information about Ontario corporations required the use of an intermediary and payment of fees to access corporate information. This increased the level of privacy that directors of Ontario corporations enjoyed (although this information was certainly not confidential). Alternatively, the federal corporation registry publishes director and registered address information, including names and addresses. This has meant that not only is that information publicly accessible, but that search systems have further collated and published the information.
Corporate Name: Historically, the federal incorporation process has included higher scrutiny regarding corporate names. The federal ministry routinely rejects proposed corporate names where a similar corporate name exists. Ontario, on the other hand, approves corporate names unless that exact name has already been used or the name contains a prohibited term. This has provided a reason for some Ontario businesses to incorporate at the Provincial level.
Here is a cheat sheet to help compare the jurisdiction choices:
Jurisdiction of incorporation is only one of many decisions which need to be made when incorporating. Investing in both accounting and legal advice helps ensure that the best choices are made for your business. Our experienced Corporate Services Team can help you through the entire process - you can schedule an intake call to get started.