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Company Formation in Canada – What to Expect?

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Canada is one of the easiest countries to start a business, especially if you are planning to emigrate there. But even if you don’t move and simply wish to form a company in Canada, you have several options at your disposal.

It’s important to understand that the requirements and laws are different if you simply want to open a new branch of your existing business in Canada. This article delves into the specifics of company formation in Canada for prospective business owners (foreign) and businesses wishing to register a Canadian business entity and establish a presence in this North American market.

Essential Considerations Before Forming a Company in Canada

There are a few things you should know before you form a company in Canada:

  • Most of Canada follows common law, but if you wish to operate in the province of Quebec, you should know that they follow civil law and may have different prerequisites for a foreign business than the rest of Canada.
  • Different provinces in Canada may have different requirements and regulations pertaining to specific laws. For example, if yours is a financial business (lending, investments, etc.), you may have to obtain relevant certificates from each province you operate in. Similarly, some provinces (like British Colombia) make it easy to form a company in Canada as a non-Canadian, and it may be difficult in other provinces.
  • Canada has multiple business types, and the two most common ones are partnership and corporation. The latter is better suited for most non-Canadian business owners.
  • The Investment Canada Act was introduced to encourage non-Canadians to acquire Canadian businesses or start new businesses in Canada. Developing a basic understanding of this act and what it may entail for your business is an important step to take before you move to company formation in Canada.

Company Formation in Canada

There are four core steps to forming a company in Canada:

Step-1: Naming: Your company in Canada must have its own distinct name in English, French, or a separate name in both. You can search for the available names in the government registry though you may have to conduct additional research for financial institutions and businesses registering directly under a province. Once you have decided upon a name, you can get it reserved for you via a Nuans report for 90 days. If the name or the business itself is not approved within 90 days, you may have to get another report.

Step-2: Articles of Creation: You have to write articles of creation for your company. Smaller companies have an easier time at this step as they can opt for basic incorporation, which is pre-packaged. Larger companies have to go through the custom incorporation route.

Step-3: Business Address and Board of Directors: The business address should be capable of receiving formal notices and mail. As for the directors, the requirement is that at least 25% of the board members should be Canadian nationals. For companies with fewer than four directors, at least one should be Canadian. The requirement is different for public companies and may differ from province to province. Ontario, for example, does not impose a minimum requirement for Canadian resident board members.

Step-4: Fee: The next step is simply to submit the necessary requirements and pay the fee.

These are the requirements of the federal government. You may need to register your business with the province as well. Different provinces have different requirements and fees associated with company formation.

How Is Company Formation in Canada Different for Foreigners?

As a foreign business (or individual) forming a company in Canada, there are a few things you need to understand.

  • If you are running a business solely in one Canadian province, you may register a company as a foreigner without the need to take on a local board member in certain provinces, like Ontario, British Columbia, and Alberta. However, these provinces may have additional requirements like a physical address in the province or, barring that, an incorporation agent that resides in the province.
  • As a foreign business, you will have to meet the requirements and register your business under the Invest Canada Act. The investment Canada application is necessary for forming a business as a foreign entity.
  • If you meet the federal threshold of local directors, you may register the company without the need to fill out the Investment Canada application. However, if you need to operate the company from Canada, you may need an adequate work permit (unless you are immigrating). You should also investigate different visa classifications, though the best one in this regard would be the multi-entry visa that allows you to enter and exit Canada multiple times for a period of ten years. However, you can only stay for a period of six months for each visit.
  • You will need to register your business with the Canada Revenue Agency (CRA) for tax purposes. This is another avenue where the choice of the right province can be quite significant. Different Canadian provinces have different business taxes, so make sure you choose the best possible option regarding where you register your company.
  • Canada keeps relatively tight control of the healthy competition in the market, and it ensures that foreign businesses do not have a negative impact on local businesses. Hence, you will be required to pass a Labor Market Impact Assessment (LMIA) to ensure that your business will not harm the existing local players in the market.

Company Formation in Canada with The Right Partner

Canada is a relatively easy country in which to form a company, but it also has certain challenges, starting with the differences in provincial laws. Deciding to register a new company in Canada without evaluating all your options and understanding all the short-term and long-term legal, regulatory, financial, and growth implications of your choices can prevent you from reaping the full benefits of forming a company in Canada.

This is where an expansion partner like Aadmi can be indispensable. We can help you navigate the process smoothly and help you make the best choices for your business in Canada.

 

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