Federal Incorporation – What are the Pros and Cons?
The options for incorporating include provincial or federal incorporation.
Both provide certain benefits such as limiting liabilities and tax advantages. Some may think federal incorporation is the better option because of its perceived name, but is it really?
To better understand federal incorporations, it is beneficial to analyze its pros and cons:
Pros of Federal Incorporation
- Protection across Canada: Once your name is approved by Corporations Canada, it will be protected across Canada – meaning that no other company within the same industry can use a similar name
- Conduct business nationwide: Federally incorporated companies can legally operate across Canada with its name
- Benefit those who are not Canadian citizens: A federal incorporation requires only 25% of its directors to be Canadian citizens – attractive option for overseas nationals who want to conduct business in Canada
- Federal incorporations have more global recognition than provincial incorporations: This will benefit those who already have or are planning to have operations internationally
Cons of Federal Incorporation
- Must register company separately in each province it operates in: Even though a company is federally incorporated, it must still register in each province it operates in
- Extra costs: Application for federal incorporation costs $200 if done online at Corporations Canada but there will be additional costs when registering the company extra-provincially
- Extra paperwork: Federal incorporations may have extra requirements in terms of corporate filings and minute book if it is registered extra-provincially
- Specific name requirement: The names of federal incorporations have a stricter requirement to meet as it need to be more specific than provincial incorporations
In all, federal incorporations tend to be more favorable for companies that operate in more than one province/country. However, business owners should consult with their legal advisor to decide which type of incorporation is best for their business.
Winright Law is a law firm that focuses on both business and real estate law. Our practice is devoted to helping companies and individuals, with their legal issues and protecting them from legal liability. Our clients range from individuals and investors to real estate syndicates, restaurants, as well as start-up companies.
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*With information gathered from Corporations Canada