Canada is today one of the best countries in the world to start a new business. Canada has the lowest overall tax rate on new business investment and lowest business costs in advanced manufacturing and corporate services among G7 nations. Canada also has the lowest business costs in the digital and R&D sectors.
Why Start a new business in Canada
- Strong geographic and sectoral clusters (e.g. aerospace, automotive, biomedical, digital media, agrifood)
- One of the soundest banking systems in the world
- Diverse, confident, creative, entrepreneurial people
- Low statutory and marginal effective tax rates for businesses
A wide variety of legal arrangements may be used to carry on business activity in Canada. Some of the more commonly used arrangements are corporations, limited partnerships, partnerships, trusts, co-ownership, joint ventures, and unlimited liability companies.
The selection of the appropriate form of business organization will depend in each case upon the circumstances of the investor, the nature of the activity to be conducted, the method of financing, income tax ramifications and the potential liabilities related to the activity.
Generally, one of the first issues faced by a foreign entity contemplating carrying on business in Canada is whether to conduct the business directly in Canada as a Canadian branch of its principal business or to create a separate Canadian entity to carry on the business. The following issues should be taken into consideration before making this decision:
- the treatment of Canadian business income for tax purposes in the proponent’s home country;
- the advisability of isolating the assets of the principal business from claims arising out of the Canadian business;
- whether one or more parties will own the Canadian enterprise;
- criteria for the availability of federal, provincial and municipal government incentive programs; and
- Canadian tax considerations.
A foreign entity carrying on a branch operation in Canada must be registered in each of the provinces in which it carries on business. In addition, foreign entities must complete many of the same disclosures and filings with the federal and provincial governments as are required of Canadian corporations.
Of the forms of a business organization referred to above, the corporation with share capital is the entity most often used to carry on commercial activities in Canada. Unlike the limited partnership, partnership, trust, co-ownership or joint venture, the corporation is a legal entity separate from its owners. The shareholders do not own the property of the corporation, and the rights and liabilities of the corporation are not those of the shareholders. The liability of the shareholders is generally limited to the value of the assets they have invested in the corporation to acquire their shareholdings. In addition to the advantages of limited liability, the securities of a corporation are generally more readily marketable. As a result, corporate shares (and debt instruments) are often seen as more attractive investments than units in partnerships or joint ventures. In some situations, there may also be tax advantages to using a corporation.
Unlike a corporation, a partnership is not a separate legal entity, but a relationship that exists between the parties who carry on business in common with a view to profit. Partners share in the profits, losses and net proceeds on dissolution. The most significant advantage of a partnership is that it is permitted to “flow-through” losses to its partners that may, subject to certain rules in the Income Tax Act (Canada), be used as deductions against the partners’ other income. The most significant disadvantage of a general partnership is that each of the partners is personally liable for the liabilities of the partnership, and their personal assets are exposed in the event the partnership assets are insufficient to cover such liabilities. The exposure of a partner to liability can be minimized by using a limited partnership rather than a general partnership. In a limited partnership, the liability of a limited partner is limited to the extent of its investment in the partnership, so long as it takes a passive role in the business and governance of the limited partnership.
In each case, the selection of the form of business organization best suited to carry on business in Canada will depend entirely on individual circumstances.
Where a corporation is a preferred vehicle for carrying on business within Canada, consideration must be given to the appropriate jurisdiction for incorporation. The nature of a corporation’s particular undertaking (e.g., banking) may be such that it falls within the exclusive legislative purview of either the federal or provincial governments, with an attendant requirement to incorporate under a specific statute. However, corporations not specifically subject to such legislation may be incorporated under the federal laws of Canada or under the laws of any one of the provinces or territories.
Company Formations provides fast and easy Company Registration in Canada for non-Canadians residents and provides all the documents your new Canada corporation will need to stay up-to-date and in compliance with your province of registration corporations law.
Our Canada Incorporation Service includes:
- Name Search Report
- Preparation of Articles of Incorporation and Incorporation Documents
- Incorporation Agreement
- By-Laws, Company Minute Book, Share Certificates
- Canada Registered Agent Service for 1 year
- Government Fees
- Our Service Fees
- Original Certificates
- Copy of Documents in PDF
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