Last Updated on March 24, 2025 by BusinAssist Editorial Team
Whether to incorporate federally or provincially in Canada depends on your business goals and objectives. Both structures have advantages and disadvantages; however, knowing their differences will help you choose the best one for your business.
Should I incorporate federally or provincially? This article will explore the difference between federal and provincial incorporation, not forgetting the pros and cons.
What is federal incorporation?
Federal incorporation is the process of registering a business with the federal government. Federal corporations are governed by Corporations Canada, which offers broader protection. Federal corporations can operate in all provinces or territories.
Federal corporations offer extensive name protection, a broader reach of audiences in the country, and global recognition. Like limited liability companies, federal corporations protect business owners and directors from the company’s liabilities.
There are no restrictions on where a federal corporation can locate its office since it can operate anywhere in Canada. However, it is important to note that at least 25% of the board of directors must be Canadian residents.
What are the pros of federal incorporation?
Limited liability: As a distinct entity, federal corporations offer limited liability to directors, business owners, and shareholders. If the company has liabilities such as debts, legal consequences, or even liquidation, the personal assets of directors, business owners or shareholders will not be at risk of creditors. Federal corporations can contract with other entities in their own name, take loans, pay debts, and manage their liabilities.
Name protection: When registering your federal corporation, you must obtain a Newly Upgraded Automated Name Search (NUANS) report and submit it to Corporations Canada. This report protects the name of the corporation countrywide.
Tax advantages: Federal corporations may benefit from tax advantages and government incentives. Unlike personal income tax rates, they also benefit from lower corporate tax rates.
Global recognition: Federal corporations can operate globally, making it easier for businesses to be recognised internationally.
Professional status: Federal corporations improve the professional status of your business more than sole proprietorships. The main difference in perception is that a federal corporation is registered and rigorously monitored by Corporations Canada, preventing economic crimes. A professional image is coupled with transparency, which benefits your business by attracting new customers, investors, suppliers, and partners.
Investment and lending opportunities: Federal Corporations have shareholders, making it possible to raise additional funds by selling shares to new investments. They also have more lending options, such as business loans from banks. Banks find it difficult to give loans to unincorporated businesses. Federal Corporations can also benefit from government grants, angel investors, crowdfunding, and many other sources.
Implications of incorporating federal corporations?
Complex administrative tasks: Federal corporations have complex accounting and reporting responsibilities that can be challenging for directors. Corporations must also adhere to record-keeping and legal requirements.
Strict regulations for specific businesses: In Canada, lawyers, physicians, accountants, and engineers cannot incorporate a federal company. They must operate at the provincial level and comply with provincial regulatory bodies.
Annual compliance and filing requirements: Federal corporations must file an annual return every year, regardless of any changes to the corporation.
What is a provincial incorporation?
Provincial incorporation legally registers a business that will only operate in the province in which it is incorporated. The corporation is governed by provincial legislation. The company name is protected within the province of incorporation, and the office should be located within that province.
However, this does not mean the company is prohibited from conducting business with companies from other provinces. A provincial corporation has to file the Initial Return with the province it is incorporated in within 60 days of its incorporation date.
Pros of provincial incorporation?
Simple and fast incorporation: Provincial incorporation is straightforward and fast to process. The process involves approval of the same-day company name, which makes registering the business quicker.
Effective for regulated professions: Lawyers, accountants, and engineers can seamlessly incorporate provincially. These professionals can only incorporate provincially to ensure compliance with provincial laws.
What are the cons of provincial incorporation?
Limited name protection: Provincial incorporation can only operate their business within the province of incorporation, which means that the business name will be protected within the province. There is no guarantee that your business name cannot be used in another province.
Higher cost: It is more expensive to meet ongoing requirements of provincial incorporation than federal. There are additional charges for corporate changes and annual returns every year. This can be expensive for businesses that go through changes multiple times.
Third-party services: Most provincial corporation services are outsourced since third-party service providers manage them. This can introduce additional fees and complexity when dealing with intermediaries rather than directly with the government.
What is the difference between provincial and federal incorporation?
Name protection:
Federal incorporation offers name protection nationwide in Canada. Before incorporating a federal corporation, a business must obtain a NUANS report and submit it to Corporations Canada, offering countrywide protection of your business name.
Provincial incorporation offers limited name protection since they can only operate in the province of incorporation. There is no guarantee that another business will not use your name in another province.
Scalability:
A federal corporation can expand from one territory or province to another without limitation since it can operate countrywide. In contrast, provincially incorporated corporations can only operate in one jurisdiction: the province of incorporation. They are considered foreign in other provinces but can operate extra-provincially if the law in their province allows it.
Recognition:
Companies that incorporate federally are recognized worldwide as Canadian corporations. Conversely, provincial incorporation lacks the same international recognition as federal incorporation.
Online services:
Federal incorporation facilitates online services for document submission, fee payments, and acknowledgments without the need for intermediaries. The processes for provincial incorporation can differ significantly from one province or territory to another.
Should I incorporate federally or provincially? You can include based on the above-mentioned differences and pros and cons; you choose which incorporation will suit your business based on the best advantageous structures, depending on your business’s needs.
BusinAssist helps businesses start and incorporate federally and provincially in Canada. This service seamlessly helps Canadian and non-Canadian residents register their businesses for an affordable fee.
We also offer Toronto virtual office services with additional benefits such as mail handling, free VoIP numbers, 24/7 call answering services, and more.
For more information on federal or provincial incorporation, contact us at [email protected].
FAQs
Q: How much does it cost to incorporate federally in Canada?
Ans: The cost of incorporating federally in Canada depends on how you register the business. To register with BusinAssist, you will pay $200 for a numbered name and $ 213.80 for a word name.
Q: Is it better to incorporate federally or provincially?
Ans: Whether it is better to incorporate federally or provincially depends on your business goals and needs. If you want to expand your business into other provinces in Canada, it is better to incorporate federally. But if you want to operate in one province, it is better to incorporate provincially.
Q: What is federal incorporation?
Ans: Federal incorporation means your business falls under the federal government and operates under the Canada Business Corporations Act (CBCA). Federal Corporations can operate anywhere in Canada using their corporate name without extra registrations in the province.
Q: Can a company be incorporated under federal law in Canada?
Ans: Yes, a Federal corporation can be incorporated under federal law in Canada.
Q: Can I incorporate federally if I am provincially incorporated?
Ans: Yes, you can incorporate a federal corporation if you are provincially incorporated. However, the process can be expensive and time-consuming and requires provincial and federal government approval.
Read Also:
- How to Incorporate a Federal Corporation in Canada: A Guide
- What Is a NUANS Report? Understanding Its Purpose and When You Need One in Ontario
The BusinAssist Editorial Team has 15+ years of experience writing about small business and company formation in the UK, Canada, and the USA. We simplify complex processes and provide practical insights to help entrepreneurs succeed.