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PROVINCIAL INCORPORATION: Deeper into Federal vs. Provincial

The provincial law in Ontario stipulates that a company doing business in the province should also incorporate there. Meticulously satisfying the incorporating requirements therein, along with advice from lawyers and accountants, the process of forming a company would not be difficult.

Obviously, the first thing would be to find a name for the company, which in Ontario, has to be in English or French, or it could be a version in both of these languages. In other words, if it is French in the first place, the English part should be as close as possible to  the other in meaning, sense and spirit. The art and science of naming a company may appear simple, but in reality it is not so. The requirement is something unique, which at the same time describes best the business of the company. The uniqueness is a crucial marketing strategy, as it helps would-be-clients and customers to identify the company. Furthermore, it would be a surefire method of ensuring that the name is not mistakenly regarded as that of an existing business. In that event, the name is likely to be rejected by the authorities. If a name is not stipulated in the Articles of Incorporation, the powers that be, will assign a number, which would be the legal name of the company. Then a trade name should be registered provincially under the Business Names Act, providing a provincial Business Identification Number (“BIN”) and a Master Business License.  It would be this trade name that should be known to customers. The BIN is issued when a business (trade) name is registered in Ontario.  It should not be confused with the federal Business Number, BN, assigned by the Canada Revenue Agency (CRA) for federal programs and accounts, including Goods and Services Tax/Harmonized Sales Tax (GST/HST), Import/Export Accounts, Payroll Deductions and Corporate Income Tax.  Unlike the BN, the BIN is only to identify the business (trade) name registered in Ontario.  The BN will identify all the federal accounts associated with the business, save and except a unique suffix or program/account identifier, like RT0001 for GST or RC0001 for Corporate Income Tax.

Address

The company must have an address for incorporation within the province of Ontario. A post office box will not do, a proper commercial or residential address is necessary. If the company intends to operate from more than one location, the address of the primary one  is to be given. It is also necessary for the incorporators (usually the shareholders) of the company to be registered. As they are the people who most likely founded or own the company; the complete residential address of each of the incorporators (no post office box) should be provided. Ontario incorporation laws for private companies, stipulate a minimum of one (1) shareholder, while the maximum is technically limited to fifty (50). Ontario incorporation set no limit on the number of shares to be issued, a matter for the company to decide. Nor do the laws have any say on the amount and value of the company’s shares, a matter for the company and its financial advisers to determine. The laws stipulate that the total number of shares outstanding (issued and in circulation) should be proportionately divided among the shareholders.

Directors and officers

Appointment and selection of such personnel are also a part of Ontario incorporation. The directors are the people who make the major policy decisions, and the officers run the company holding senior management positions (usually in accordance with the policy decisions). Ontario incorporation laws require that a majority (over 50%) of the directors should be Canadian residents. If there are only two directors, then one of them should be a resident of Canada. It is not necessary to appoint a large number of people to form a company. The directors can be shareholders and can be officers of the company as well, which is usually the organizational structure of small companies. The company has the option to create as many senior management positions as it needs; incorporating in Ontario stipulates the appointment of a President and a Secretary. Other appointments have no effect on incorporating.

Fiscal year

Yet another requirement is fixing the date of the end of the fiscal year for the company. Generally, a twelve month period decided by the company as its official accounting year (when the yearly profits and losses are calculated), is called its fiscal year. It is quite common for a large number of companies to close their accounts at the end of the calendar year, but that is not mandated by Ontario incorporation.

External auditor

Although companies have in their employ people capable of maintaining proper accounting records, it is customary to engage an outside independent auditor to prepare the annual financial statement. The outside independent auditor, usually a chartered accountant, checks the company’s financial records and verifies professionally that they are accurate. The auditor could also be an accountant employed by the company, but should preferably not be a director or an officer. It is also likely that the shareholders of the company may decide against appointing an auditor for a particular financial year, so long as the company remains private. Ontario incorporation does not stipulate that the company employ an auditor; however Securities law in Canada creates the requirement should the company become public (widely held and usually exchange listed). Nonetheless, it is generally regarded as a good business practice.

It would be seen from the above that the most significant differences in Federal and Ontario or provincial incorporation, besides the obvious jurisdiction of the law (Canada Business Corporation Act vs. Ontario Business Corporation Act) is:

Federally incorporated companies would need to register extra-provincially in the province where they elect to do business. But, a provincial company need only register extra-provincially if it intends to have offices outside the home province.

This is why in Ontario incorporation, there is so much emphasis on the address of the company as also of each incorporator – the registered office must be in the province you incorporated under.  Whereas federal corporations can have its registered office anywhere in Canada.

Federal incorporation allows your name to be used across Canada; while protection of the name is also across Canada and can only be defeated by an other’s Trademark.  Provincial incorporation will only protect your name in the province or territory your company incorporated under.  Hence, federal name granting guidelines are stricter than those for provincial corporate name granting.  Provincial corporate names are searched for availability against other names in the province prior to granting.  Whereas federal corporate name granting looks deeper into the types of possible confusion with other names across the country, considering their types of business, place of operation, the actual words used in the name as well as their synonyms.

Federal companies require yearly filings whether or not there have been changes to the directors or address of the registered office. There is a filing fee to accompany the filing.  Provincial companies need not file annually unless there have been changes, and in some provinces there may be no fee for filing.

More importantly, federal corporations can operat across the country as of right under law, provided they comply with the extra-provincial filing/registration requirements.  Provincial corporations only have the legal right to operate within the province they incorporated under.  Thus, they must register or incorporate again in every province before they are able to operate extra-provincially.

In Ontario, the requirement is for a majority of the directors (over 50%) be Canadian residents.  Federal corporations require that only one in four directors (25%) be residents of Canada.  In some of the other provinces there is no requirement for directors to be Canadian residents, or rather than a majority only one in four need be Canadian residents.

Finally, believe it or not, the government incorporation fee is usually cheaper for federal as appose to provincial.  However, federal incorporation has mandatory annual filings which would most likely overall prove to be more costly – in terms of government fees.

With regard to other requirements, generally they are the same. The differences are more in form, but not much in substance.

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