When a Canadian small business is ready to incorporate, it has two options: Provincial or federal incorporation. The way in which a business incorporates can have long-lasting implications for its success. It is important for business owners to choose the method of incorporation that is the best fit for their company.
Provincial and federal incorporation have similarities and differences that business owners should take into careful consideration. In this post, we’ll go over both types of incorporation–and which one could be right for your business.
Provincial incorporation
In provincial incorporation, a business will be incorporated in only one province. A business that files for incorporation in British Columbia, for example, will be incorporated only in British Columbia and not throughout the rest of Canada. One of the benefits of incorporating provincially is that your company will not have to pay annual fees. On the other hand, provincial incorporation does tend to be more expensive overall than federal incorporation.
There are certain types of business that are required to incorporate provincially rather than federally. Doctors, lawyers and dentists, for example, are restricted to provincial incorporation. However, some business owners prefer to file provincially. Businesses like local restaurants that do not intend to expand to other provinces sometimes choose this method.
Federal incorporation
Federal incorporation is when your company is incorporated with the Canadian government and is regulated by the Canada Business Corporations Act. Once a business is incorporated federally, it can operate throughout all of Canada. A downside is that there is usually more paperwork involved, as businesses must deal with both provincial and federal corporate filings. There is an annual fee for federal incorporation, but it is fairly small–only $20.
Businesses that do a lot of online business and ship to other countries could benefit from federal incorporation, as it also allows companies to do international business. Another benefit of federal incorporation is that it allows businesses to keep their name, even if another company’s name is similar or identical.