After you decided what form of organization to use, and assuming you have decided to incorporate corporation or company (albeit jurisdiction matters apply with respect to any form of organization) you will need to decide where to incorporate - or what lawyers call "jurisdiction".
There are a number of myths and misapprehensions about the advantages and disadvantages of the how and where you incorporate. Getting proper advice and making an informed, and more likely correct, decision can be key to the success and ultimate value of the business.
In Canada, you can either incorporate federally (pursuant to the Canada Business Corporations Act or, very rarely these days, by royal prerogative) or incorporate in any one of the ten provinces or three territories of Canada in accordance with the corporate legislation particular to that province or territory. In addition, corporations incorporated outside Canada may similarly be permitted under the laws of a province or territory to be recognized as such and to carry on business in that province or territory. The following matters are some of the more common considerations when deciding whether to incorporate federally or provincially:
Certain businesses must be incorporated federally due to the business they intend to carry-out (like national railroads, telecommunications and certain banks). A provincial company is restricted to provincial objects, so its business must be within provincial legislative jurisdiction.
A federal corporation has the capacity to carry out its purposes throughout Canada as of right. However this does not mean that it has an unfettered ability to carry-on its business in each province. Provincial law, which may still apply to a federal corporation, may require a federal corporation to register as an extra-provincial corporation prior to or concurrent with the federal corporation attempting to "carry on business" in that province. This is an additional expense, particularly if it is carrying on business only in one province. However that federal corporation need not change its name to do business in a province where there is a corporation with a similar name (see below).
A provincial company can carry on business within its own province as of right, but to carry on business in any other province it register (or otherwise becoming qualified) as an extra-provincial corporation in that jurisdiction. Such registration can be refused by the other jurisdiction and if a provincial company's name conflicts with the name of an existing corporation in that other province, that company may be required to change its name or conduct business in that other province under an assumed name acceptable to that jurisdiction.
Consider the local, national or international/cross-border nature of the business. Federal corporations under the Canada Business Corporations Act are more similar to corporate models used in the United States. A British Columbia company may seem more familiar to structures common under English law. Foreign entities may be more familiar with a reference to "Canada" rather than a reference to "British Columbia" albeit it should be noted that British Columbia's Business Corporations Act was modeled with the specific intent of offering flexibility and efficiency for corporate transactions and contains many capital structures and other provisions not available in other jurisdictions.
Any applicable provincial legislation may contain provisions that are stricter or more complex than in the Canada Business Corporations Act, and vice versa. It may be prudent to take the time to compare provisions concerning the liability and residence of directors, financial disclosure, meetings and records, continuance to/from other jurisdictions, and share transfer and determine which regime is right for your particular undertaking.
While corporate jurisdiction can change (called a "continuation"), the process does have costs associated with it. Taking the time to consider the proper jurisdiction in the circumstances is an important part of the incorporation process and should be given appropriate attention.
Endeavor Law can assist founders, entrepreneurs, family and small business owners and start-ups with the evaluation of any pros and cons of incorporating in any particular jurisdiction. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.
Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.