Federal or provincial incorporation

Once you have decided to incorporate your future business, you will have to choose between incorporating it under the federal CBCA (Canada Business Corporations Act) or the provincial BCA (Business Corporations Act).

Before the adoption of the BCA in 2011, this choice was of greater importance, because the former applicable provincial law (1A of the Companies Act), offered much less flexibility to its directors and shareholders with respect to the management of their corporation.

Nowadays, although fewer in number, some differences remain between these two laws. We will list them briefly.

  • The Head Office

Under the BCA, the company’s head office must be located in Québec, while under the CBCA, its location is not subject to any restrictions, provided it is located in Canada.

In both cases, you will be able to do business throughout Canada (or outside Canada), subject to compliance with the applicable legislation of each province in which you shall do business.

  • Costs

Although at first sight the federal company seems to be less expensive to incorporate, it has to register with the Registraire des entreprises before being able to do business in Quebec. This will result in higher costs than for its provincial counterpart, as, the latter will be automatically registered as soon as it is created.

Registration constitutes in the obtaining of a Québec Business Number (NEQ) from the Registraire des entreprises.

  • Share Capital

The Quebec legislation now allows the issuance of unpaid shares to its shareholders, a mechanism that does not exist under the CBCA. This flexibility allows for a faster issuance of the company’s shares.

It is also possible under the LSA to issue these shares without a corresponding certificate, or to assign a nominal value to them. In both cases, this is not possible under the CBCA.

  • Board of Directors

The BCA has two advantages over its federal counterpart respect to the Board of Directors.

Firstly, unlike the federal law, which requires that at least 25% of the corporation’s directors be Canadian residents, the Quebec law does not impose any restrictions or requirements as to the composition of the board of directors.

Secondly, in the event that shareholders withdraw all the powers of the board of directors (through a unanimous shareholder agreement), they will no longer be required to form such a board of directors.

This possibility, which does not exist under the CBCA, is particularly interesting for smaller companies, or sole shareholder corporations which will see their internal operations greatly simplified. In the case of sole shareholder companies, all acts performed by the sole shareholder will be deemed authorized.

  • Updating information

A federal corporation will have to keep its information up to date not only with the Quebec Registraire des entreprise, but also with its federal counterpart.

This necessarily entails higher annual costs to maintain the information of a federal company up to date.

Whether for a federal or provincial company, do not take any risks and consult a lawyer. Our firm offers a range of turnkey solutions for all your current and future corporate needs.

Me Jean-Philippe Ponce, in collaboration with Valentin Tanasescu, articling student

Ponce Lawyer Inc.

This article does not constitute legal advice, to obtain a solution adapted to your needs, please consult a lawyer

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