Canada Company Registration- An Overview

Canada is the world's tenth largest economy allowing people to establish and carry out business. The wealth of resources in Canada makes it simple for any investor or entrepreneur to start a business. Any person across the globe can incorporate and start a company in Canada. The government offers different forms of incentives to entrepreneurs to operate in Canada. Apart from this, many investors migrate to Canada as the opportunity provided makes it easier for company registration in Canada. It is a leading country categorised as one of the prominent G7 nations. Apart from this, it is also well placed in the ease of doing business index worldwide. You can choose from different business structures depending on your business activity.

Benefits of Company Registration in Canada

Following are the benefits of company registration in Canada:

• Low Corporate Tax rate-

The corporate tax rate is the major factor for businesses around the world in choosing a jurisdiction for relocation or starting a new business. Lower corporate tax rates allow businesses to save their income and invest the surplus back into the business. In order to attract investors across the globe, Canada has kept its corporate tax rates considerably lower compared to other developed countries reducing the same from 18% to 15%, making it the most sought-after destination to set up a business. 

• Benefits from Free Trade Agreements-

Canada is a signatory to a number of Free trade agreements offering Canadian businesses unhindered access to their markets. Canada has entered into North American Free Trade Agreement (NAFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU's Comprehensive Economic and Trade Agreement (CETA) which offers access to these significant markets at favourable terms.

• Strong regime of Intellectual Property Rights -

A strong Canadian regime of Intellectual Property Rights provides protection to innovation. The Canadian system keeps on improving and evolving, making its administrative processes smoother and simpler in protecting Canadian businesses. Further, Canada has also been a signatory to multiple international IP protection agreements such as Hague Agreement and treaties such as the Madrid Protocol, the Singapore Treaty, the NICE Agreement, WIPO's Patent Law Treaty etc.

• Advantages of a developed economy-

The Canadian economy is developed with pre-Covid unemployment levels below 5%. Further, the wage rate has been kept competitive compared to the rest of the world's developed nations, making Canada financially stable with a financially mature and stable economy.

• The abundance of natural resources-

Canada has been gifted with a vast amount of resources, including natural gas, crude oil, timber, minerals, coal, etc., which have fuelled the Canadian economy for a long time. Coupled with strong economic fundamentals and an abundance of natural resources, Canada is seen as an ideal destination for businesses across the world to make inroads in the Canadian market.

• Favourable environment for business-

Canada also offers a favourable business ecosystem for businesses to flourish. This is the reason that Canada has been ranked among the top countries in terms of Ease of Doing business. A flourishing environment is provided to businesses, especially start-ups, by offering low net effective tax rates. Additionally, credit is offered to businesses at very low rates, along with multiple investment opportunities.

• Educated and Competitive Workforce-

The Canadian workforce ranks among the most educated and competitive workforces worldwide and therefore offers many opportunities for businesses to benefit from a skilled workforce. Another attractive feature of the Canadian economy is the absence of intensive labour law restrictions, which are highly prevalent in most developed countries.

Regulatory Authority/ Body for Company Registration in Canada

The primary regulatory authority for company registration in Canadais Corporations Canada for federal-level company registration, and there are respective province-specific authorities for the provincial registration of a company.

Eligible Business Structures under Company Registration in Canada

There are primarily 3 types of business structures in Canada. Following are the business structures that entrepreneurs can adopt in Canada:

• Sole Proprietorship -

A sole proprietor's business structure is informal and the most common for small businesses. In the eyes of the law and tax authorities, the business and the operator are the same. The income generated from the sole proprietorship is the income of the proprietor himself and, therefore, liable for taxation in the personal income tax form.

It is also used as a source of tax management where people adopt the sole proprietorship structure for their side businesses. It helps them in tax management, where the losses generated in the businesses can be used to reduce the income gained from other sources. Here, the proprietorship's money and responsibilities are that of the proprietor himself. This also becomes a downside as the proprietor is personally liable for all the debts and liabilities of the proprietorship.

• Partnership-

A partnership is a similar structure where there is more than one proprietor. There is no legal structure for a partnership; however, they are governed by the terms and conditions laid down under the partnership agreement, which governs the sharing of revenues, expenses and tasks etc.

Three types of partnerships exist in the Canadian system, viz. General partnership, Limited Partnership and Limited Liability Partnership.

1. General partnership
2. Limited Partnership
3. Limited Liability Partnership

• Corporation -

A corporation in Canada is similar to the concept of a company in other jurisdictions where the liability of the investors towards the debts and obligations of the corporation is limited, the investor can raise capital from the investors quite easily, and the tax payment can be optimised in many ways. However, a corporation involves elaborate paperwork and hefty sums of money for their incorporation purposes, governance etc. 

Following are the 5 types of corporations that are recognised in Canada:

• Canadian Controlled Private Corporation (CCPC): A corporation is said to be a CCPC if it meets all of the following criteria at the end of the tax year:

1. It is a corporation that was resident in Canada and was either incorporated in Canada or resident in Canada from 18^th June 1971 to the end of the tax year
2. It is a private corporation
3. It is not under the direct or indirect control of one or more public corporations (other than prescribed venture capital corporation as defined under Regulation 6700 of the Income Tax Regulations)
4. It is not under the control of one or more non-resident persons
5. It is not under the control of a Canadian resident corporation whose shares are listed on a designated stock exchange outside of Canada
6. It is not under the direct or indirect control of any combination of persons mentioned under the previous three conditions
7. If a non-resident person owns all the shares of the corporation, by a public corporation (other than a prescribed venture capital corporation), or by a corporation whose shares are listed on a designated stock exchange were owned by one person, and such person does not own sufficient shares to control the corporation.
8. There are no classes of shares of the corporation that are listed on a designated stock exchange.

• Other Private Corporation: A corporation is considered an Other Private Corporation if it meets all of the following criteria at the end of the tax year:

1. It is not a public corporation
2. It is resident in Canada
3. It is not under the control of one or more prescribed federal Crown corporations (as defined in Regulation 7100)
4. It is not under the control of one or more public corporations (other than prescribed venture capital corporation as defined under Regulation 6700 of the Income Tax Regulations)
5. It is not under the control of any combination of corporations described under the previous two conditions.

• Public Corporation: A corporation is said to be a Public Corporation if it satisfies either of the following requirements at the end of the tax year:

1. If it has a class of shares that are listed on a designated Canadian Stock Exchange; or
2. It has been elected, or the Minister of National Revenue has designated it to be a public corporation. The corporation has complied with the conditions prescribed in Regulation 4800(1) of the Income Tax Regulations on the number of shareholders, the public trading of shares, the dispersal of the ownership of its shares, and the corporation's size

• Corporation Controlled by Public Corporation: A corporation is said to be a Corporation Controlled by a Public Corporation if it is a Canadian subsidiary of a public corporation. This corporation does not qualify as a public corporation to determine the type of corporation when completing your T2 Corporation Income Tax Return.
• Other Corporation: those corporations that do not fit into the criteria of the abovementioned corporations are said to be Other Corporations. The well-known examples of Other Corporations include General Insurers and Crown Corporations.

Procedure for Company Registration in Canada

An applicant going through the process of company registration in Canadahas to follow the procedure mentioned below:

• Selection of an appropriate JURISDICTION for the corporation
• Selection of the NAME for the corporation
• Checking the availability of the Corporation’s name
• Creation of the Incorporation necessary papers
• Submission and Registration of Incorporation necessary papers
• Formation of the Board of Directors for the corporation
• Maintenance of necessary papers and Corporate Seal
• Completion of by-laws, Organisational minutes and issuance of shares
• Arranging Additional Permits and Licenses
• Opening of a Corporate Bank Account
• Register the Company

• Selection of an appropriate JURISDICTION for the corporation-

Before registration of the company, the entrepreneur should first decide the jurisdiction in which he/she wants to register the company. The jurisdiction decides the area within which the company can carry out its commercial activities. The entrepreneur has the choice to register the company in any of the 13 provincial jurisdictions or one federal jurisdiction. Usually, entrepreneurs choose their home province or the federal level registration as their company's jurisdiction.

• Selection of the NAME for the corporation-

In the next step, the entrepreneur has to choose the corporation's name. This is slightly difficult as different provinces have a different sets of guidelines and requirements with respect to corporate name approval.

Some of the guidelines that are followed across jurisdictions for the selection of the name are as follows:

1. The name should not be in contravention with the given law of the land
2. The name should not be similar or identical to an already existing corporate name or trademark. The name should not be such as to deceive the public.
3. The name can either be in English or French or both in English and French or in a combined English and French form.
4. The name should comprise a distinctive and descriptive element
5. The name should always end with a suffix which indicates the legal structure of the business

• Checking the availability of the Corporation’s name -

Before submission of the corporate name for the corporation, the availability of the desired name must be checked. The name availability can be checked in the Newly Upgraded Automated Name Search (NUANS) system or the system of Centre Informatique du Registre des Enterprises du Quebec (“CIDREQ”).

• Creation of the Incorporation necessary papers -

When the entrepreneur is thinking of incorporating a small or a private company, a basic pre-packed incorporation plan can be prepared, which includes the following:

1. Already drafted model Articles of Incorporation (which can be amended later on)
2. a maximum of two or three classes of shares
3. a maximum of 10 directors
4. a corporate name that is assigned and numbered

On the other hand, if the entrepreneur is thinking of incorporating a bigger corporation, a custom incorporation plan can be availed, which includes the following:

1. name of the company
2. share structure of the company and limits on the transfer of shares
3. number of directors in the company
4. restrictions that the entrepreneur wants to impose on the company

• Submission and Registration of Incorporation necessary papers -

In the next step, the entrepreneur has to submit the prescribed necessary papers, such as the Articles of Incorporation, along with the supporting necessary papers, which include the name search report and the filing fee, with the appropriate government authority before the incorporation of the corporation in Canada.

• Formation of the Board of Directors for the corporation -

The entrepreneur must also form the corporation's Board of Directors (BOD). While forming the BOD, it must be ensured that the BOD fulfils the eligibility criteria for becoming a director of the corporation. While incorporating, each director's first and last names must be mentioned along with their respective addresses. The residency status must also be specified at the time of their incorporation.

• Maintenance of necessary papers and Purchasing the Corporate Seal -

The law makes it mandatory for every corporation to maintain a record of incorporation necessary papers. The necessary papers include, but are not limited to, the following:

• Copy of Articles of Incorporation
• Corporate Byelaws
• Minutes of the shareholder's meetings
• Shareholder’s resolutions
• Directors’ resolutions
• Copy of the forms filed with the government agencies
• Shareholders agreement
• Share transfer register
• Securities register

Purchasing a corporate seal is also required for embossing the corporation's legal name on official company necessary papers. Apart from a few jurisdictions, all the Canadian provinces have made it mandatory for every corporation to have a corporate seal under its name.

• Completion of by-laws, Organisational minutes and issuance of shares -

The organisation of the corporation's structure is an important task after the incorporation has taken place. The initial organisation is done by arranging a meeting of shareholders and directors or through written resolutions signed by the directors or shareholders. The following things comprise the initial organisation of the company:

1. Obtaining the approval of the corporate by-laws
2. Issuing shares to the shareholders
3. Electing the directors
4. Appointing the Officers of the corporation
5. Shareholders agreement
6. Other organisational resolutions

• Arranging Additional Permits and Licenses -

Other legal obligations need to be followed by a corporation after its incorporation has taken place. These obligations involve obtaining additional permits and licenses such as follows:

1. Registration for a Federal Business Number
2. Registration for a provincial Employer Health Tax and Worker’s compensation
3. Registration for a provincial sales tax account
4. Registration for a non-corporate business name
5. Other provincial and municipal licenses

• Opening of a Corporate Bank Account -

Every corporation needs to open a corporate bank account. The applicant needs to provide the bank with a copy of the Articles of Incorporation of the proposed corporation. The signatures of all the authorised officers of the company need to be furnished. Before they are allowed to access the corporation's bank account, a copy of the company's by-laws or resolution may also be asked by the bank in certain cases.

• Starting with the operations of the company -

Once the applicant has successfully concluded all the above-mentioned steps, the management can begin with their business operations.

Corporate Tax in Canada

All companies that are registered in Canadahave to pay corporate tax. The following taxes would be applicable:

• Net Corporate Tax payable in Canada is 15%.
• For those Canadian-controlled private corporations claiming the small business deduction, the net tax rate reduces to 9%.

necessary papers for Company Registration in Canada

The following necessary papers are required for company formation in canada:

• Name Search report to show the authority that adequate steps have been taken related to searching the name and reserving the same
• Articles of Incorporation
• Lease agreement or title deed of the Registered office
• Information on the Board of Directors
• Federal Business Number for carrying out corporate transactions from the relevant revenue authority of Canada
• In case the Shareholders are foreigners, then address proof must be provided in Canada.
• Copy  of the Passport/Visa
• Canadian address proof of the foreign shareholders
• Information on the paid-up capital to form the company
• Information about the Founders of the Company- This will include their address, visa, passports and other relevant information.
• The company's shareholder's identification necessary papers need to be translated and notarised.
• Information regarding the managers of the company and their identification papers and appointment letters
• Application Form for Registration and Fees
• A statement that the manager does not have any criminal convictions
• Board Resolution( If required)