The Ultimate Guide to Federal Incorporations in Canada

By Arthur Dubois | Published on 16 Aug 2023

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    Canada stands out as one of the best nations in the world to start a business, due to its stable economy. With a diverse workforce and ‘open for business’ attitude, its rules for federal incorporation offer multiple advantages for entrepreneurs. 

    However, the process can be complex and rife with legalities that can overwhelm anyone new to navigating this maze. This guide will walk you step-by-step through the entire process of incorporating federally. From selecting the perfect business name, issuing shares, to obtaining your tax number, we’ll help you lay down strong foundations for your new business.

    What is Federal Incorporation?

    Federal incorporation involves the process of forming a corporation that is recognized by the Canadian federal government. This entity is consequently governed by federal laws, specifically the Canada Business Corporations Act. Essentially, entrepreneurs get the freedom to conduct business throughout the nation under a single set of uniform regulations.

    Through this process, a business becomes a distinct legal entity separate from its owners. This separation provides benefits, such as limited liability, which protects the personal assets of the owners from debts or legal issues.

    Furthermore, entrepreneurs can attract investors from across the country, thanks to a higher level of credibility and trust. Investors often prefer to invest in federally incorporated businesses due to the standardized regulations and oversight by the federal government.

    Benefits of Federal Incorporation

    There are numerous benefits to federal incorporation. First, companies can operate across the country. Also, this increased status earns respect, particularly if they intend to operate on a larger scale or internationally.

    In addition to the broader geographical coverage, federal incorporation provides enhanced name protection across Canada. For instance, what if you incorporate in one province or territory, then decide to expand to another province? By registering federally, you’ve already paved the way to prevent this situation when the other company screened potential names.

    Once a company incorporates federally, it gets assigned a business number. This can open doors to become a federal government supplier and to apply for programs with Innovation, Science and Economic Development Canada.

    It doesn’t end there. Corporations can also borrow money at lower rates than other types of businesses, since financial institutions perceive less loans risk. They can also sell shares or bonds to investors. Further, they generally pay lower tax rates than a sole proprietor.

    Finally, a business disappears upon your death if you operate as a partnership or sole proprietorship. Meanwhile, a corporation carries on and transfers to the shareholders’ heirs. This option of continuous existence allows entrepreneurs and employees to plan over a longer term, opening up more favourable financing. 

    Differences Between Federal and Provincial Incorporation

    While federal and provincial incorporations hold their own sets of benefits, they stand out as distinct paths of business formation. Federal incorporation allows larger geographical coverage for business operations than provincial incorporation. The second option restricts the business operations within the province of incorporation only.

    Provincial incorporation, on the other hand, can work for businesses that primarily operate within a specific province. After all, they may have no plans for expansion beyond its borders. It may also cost less for smaller businesses that do not require nationwide recognition.

    When deciding between federal and provincial incorporation, entrepreneurs should carefully consider their business goals, target market and long-term expansion plans. Seek advice from legal and business experts to help make an informed decision that aligns with your needs and aspirations.

    When choosing between federal and provincial incorporation, the residency requirements for directors can play a factor, especially for immigrants. Federal incorporation mandates that at least 25 percent of directors must live in Canada. 

    However, the rules differ in several provinces, like Alberta, British Columbia, New Brunswick, Nova Scotia, Prince Edward Island and Quebec. They don’t impose any Canadian residency requirements for directors in their corporate legislation. This allows for greater flexibility, especially for immigrants or foreign stakeholders without Canadian residency. Incorporating in these provinces could better suit those who cannot or don’t wish to meet the federal requirement.

    FeatureFederal IncorporationProvincial Incorporation
    Operational ReachAcross all provinces and territoriesLimited to the province of incorporation
    Name ProtectionNationwideWithin the province only
    Initial Costs & PaperworkTypically higher and more extensiveGenerally lower and more streamlined
    Residency Requirements for Directors25% of directors must be Canadian residentVaries by province
    Extra-Provincial RegistrationRequires registration in provinces of operationNot necessary unless expanding beyond home province

    How to incorporate federally with an online incorporation service

    Incorporating a business federally in Canada has become much more straightforward, thanks to the advent of digital platforms. They allow entrepreneurs to efficiently navigate the incorporation maze without getting bogged down by excessive paperwork or time-consuming in-person appointments.

    To begin the online incorporation process, select your preferred platform. Once on board, the first step typically involves deciding on a unique name for your corporation. Many online platforms offer real-time tools that check the availability of your chosen name. Next, you’ll input essential details about your corporation, such as addresses, director information and share structures. Upon filling out the necessary information and reviewing for accuracy, you can submit the application. 

    The waiting game begins as your application undergoes a review by the relevant federal agency. Once approved, the joyous moment arrives when you receive your federal incorporation documents, usually delivered electronically.

    Among the plethora of online platforms available, three have made significant waves in Canada:

    Ownr

    Ownr stands out for its user-friendly interface paired with robust post-incorporation support. It also goes beyond aiding in the incorporation process. It offers tools tailored for business management and scaling, so entrepreneurs have resources at their fingertips as they evolve. 

    It charges $499 for a full one-time incorporation and an online minute book to last your first year. For a more robust plan, it has a managed corporation package for $399 for the incorporation and $599 for a year of assistance. You get the incorporation within one to three days, depending on where you live.

    Incorporation Pro

    Incorporation Pro simplifies the incorporation process, minimizing the time between initiation and receiving official documents. Additionally, its responsive team is always on standby, addressing any queries that arise. 

    It provides a basic federal incorporation package for $299 within two hours or one day (you choose) of applying. Incorporation Pro charges $50 extra each to set up a business number, corporate tax ID or accounts for GST/HST, payroll, imports or exports.

    Incorp Direct

    Renowned for its comprehensive suite of services, Incorp Direct stands as a trusted name in the Canadian incorporation landscape. Catering to novice entrepreneurs and seasoned business veterans, the platform assists with the initial stages of incorporation and ongoing support. 

    Its federal incorporation packages begin at $289 and offer a provincial registration for $130. With a $100 express fee and $20 for shipping, the total comes to $538.90. However, you can add extra directors, GST/HST registration, payroll deductions and an import/export account and a business number. Each one costs $50 to $90.

    A step-by-step guide to incorporate federally in Canada

    Regardless of the path you choose — leveraging an online service, engaging with a traditional law firm or taking the reins into your own hands — certain steps remain consistent. This guide illuminates the core processes of federal incorporation in Canada, offering clarity and direction for entrepreneurs on their business journey. 

    Step 1: Choosing a corporate name

    Selecting the right corporate name is more than a branding exercise; it’s an essential legal step for federal incorporation in Canada. Before settling on a name, you must procure a NUANS report. This report highlights whether your preferred name is already taken by another entity within Canada, ensuring you avoid unintentional overlaps or infringements. Each report costs $13.80.

    However, relying solely on the NUANS report might not be exhaustive. While legally required to incorporate, it is prudent to conduct a detailed trademark search through the Canadian Intellectual Property Office. This search goes beyond exact name matches, examining phonetically similar names, logos or even slogans that could fall under trademark protection. By cross-referencing both searches, you can confidently establish your brand’s unique identity, mitigating potential legal disputes and fortifying your market stance.

    Step 2: Choose a Head Office Address and Form a Board of Directors

    Selecting the right head office address for your corporation sets the right tone for your emerging business. For many startups and budding entrepreneurs, resources might be limited. In such cases, the founder’s personal residence could serve as the official head office. Alternatively, consider opting for a co-working space. Both provide a level of professionalism while keeping overhead costs in check.

    As you establish your corporation, choose a board of directors with care. In the early stages, a single individual commonly occupies all board positions, acting as the president, treasurer and secretary. However, with multiple founders or investors, roles become more critical. Deciding who takes on leadership roles, such as the president, can influence the direction of the company and its decision-making processes. In such scenarios, delineate roles based on expertise, vision, and commitment to the company’s growth. Regardless of the size of your board, federal incorporation mandates that at least 25 percent of the directors be Canadian residents.

    Step 3: Define Your Shares Structure

    Navigating the intricacies of share structures can be one of the most vital stages in the incorporation process. Essentially, this structure dictates the ownership, voting rights, dividends and various other aspects related to the equity of the corporation.

    Often, when working with lawyers or using online incorporation templates, you’ll encounter pre-defined templates with multiple types of shares. These may include common shares, preferred shares and multiple voting shares. These structures serve different purposes. They could ensure control remains with specific stakeholders or offer different financial benefits to varied groups of shareholders.

    While these templates provide a solid starting point, carefully consider your immediate and future goals. Founders must decide how many shares to issue and whether they should grant themselves multiple voting shares. Further, sort out now what kinds of benefits each share type offers. Yes, you can refine your share structure later on. However, having clarity at this stage can set a definitive trajectory for your company’s financial and strategic future.

    For example, founders may anticipate seeking external investment down the line. In this case, they might opt for a more complex share structure that delineates founder shares from potential investor shares. On the flip side, for smaller operations where external investment isn’t on the horizon, a simpler share structure might suffice.

    When incorporating a business, delineate the legal restrictions and parameters that will guide its operations early. These restrictions not only provide clarity and direction but also offer protection from potential risks.

    For private corporations, defining how to sell or trade shares is crucial. This can include a “right of first refusal,” allowing existing shareholders the initial opportunity to purchase shares before external parties. Such restrictions protect the original shareholders and ensure they maintain significant influence over the company’s decisions.

    Founders can also set up operational boundaries, detailing specific activities the business will focus on or avoid. For example, a tech startup may specify its domain as software development, clearly indicating it won’t venture into hardware production. Such specifications help prevent brand dilution and maintain a focused business strategy.

    Step 5: Draft the Articles of Incorporation and Other Required Documents

    Having meticulously navigated steps 1 through 4, you have shaped the legal identity and framework of your corporation. At this juncture, formally translate these decisions into official documents for submission.

    The centerpiece of this documentation are the articles of incorporation. This legal document outlines the fundamental aspects of the corporation with customization based on your earlier decisions. It includes details like the corporate name, its business activities, the share structure and the rules governing its operation.

    When incorporating federally in Canada, you need to compile and file several documents:

    1. Articles of Incorporation: As discussed, this is a foundational document that details the purpose and structure of your corporation.
    2. Initial Registered Office Address and First Board of Directors: This form captures the details about the primary office location and the members of your inaugural board. The registered office address cannot be a post-office box and must match the province or territory in your other information.
    3. NUANS Name Search Report: A copy of the report you obtained in Step 1 to demonstrate your corporate name’s uniqueness. You also need this to revive a dormant business or merge with another corporation.

    Additionally, draft a shareholder agreement, especially if you have multiple founders or stakeholders. This document delineates the rights, privileges and responsibilities of all shareholders. Ultimately, it can resolve future disputes or guide decision-making processes.

    Step 6: File with Corporations Canada

    Once you’ve compiled all these documents, file them with Corporations Canada, the federal body overseeing the incorporation of businesses. This process, whether done online or through mail, serves as the official act of bringing your corporation into existence.

    To incorporate federally costs $200. While it may seem expensive, it gives your business the legal protections, benefits and status of a federally incorporated entity. 

    Upon successful submission and payment of the fee, Corporations Canada will review your documents. Once approved, they will send you a Certificate of Incorporation. This certificate serves as the official testament to the formation of your corporation, so keep it safely stored. The process typically takes one business day.

    Step 7: Register Your Federal Corporation in Your Province

    After successfully incorporating your business at the federal level, don’t overlook the next crucial step. Instead, register your federal corporation within the province or territory where your business will primarily operate. Provinces and territories often have their own registration requirements for externally-incorporated entities.

    Registering provincially ensures that your business complies with local regulations and requirements. The process typically involves filling out a registration form and providing proof of federal incorporation (like your Certificate of Incorporation). 

    Setting up Your Federal Corporation for Financial Success

    Embarking on the entrepreneurial journey with a newly minted corporation demands more than just a solid business plan. It also requires a robust financial foundation. Structuring your corporation’s finances early on can set the stage for sustainable growth and streamlined financial management.

    1. Open a Business Bank Account

    First, open a dedicated business bank account. Commingling personal and business finances can muddy the financial waters, making accounting more complex and potentially leading to tax complications. When choosing a bank, consider fees, accessibility, customer service and any additional services or perks they might offer to businesses. Remember, you’ll need your Certificate of Incorporation and other relevant business documents to open your account.

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    2. Get Business Credit Card

    Once you have a business bank account, obtaining a business credit card becomes easier. A corporate credit card not only aids in tracking business expenses but can help manage cash flow. After all, revenues might be sporadic, especially in the early days. Additionally, using a business credit card responsibly can help establish your company’s credit history, which benefits future financing.

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    3. Choose the Right Accounting Software

    From day one, a reliable accounting software solution makes a big difference. As your corporation grows, you’ll quickly realize the importance of organized finances. Modern accounting platforms often offer integration features, allowing them to sync seamlessly with your corporate bank account. This can save significant time and prevent potential errors that come from manual data entry. By selecting a software that syncs with your bank, you create a system that can automatically update and categorize transactions. As a result, monthly and year-end financial reviews become a smoother process. Startups might consider options like QuickBooks, Xero, Wave Accounting or FreshBooks, among others, based on their requirements.

    With these foundational financial systems in place, your corporation can handle the financial challenges and opportunities that come its way. Now, you can focus on growth and success.

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    How to Keep Your Federal Incorporation in Good Standing

    Ensuring the longevity and success of your federally incorporated business arises from more than executing a solid business strategy. It also entails adhering to federal regulations and requirements post-incorporation. These key considerations help you maintain your corporation’s good standing with the Canadian government:

    Filing an Annual Return

    Every federally incorporated business must file an annual return with Corporations Canada. This isn’t related to income tax, but rather an update on the basic corporation details. It keeps the federal government informed about the current state of your corporation. Failing to file an annual return can lead to your corporation being dissolved, so mark this on your corporate calendar. It costs $12 via Corporations Canada’s online portal.

    GST/HST Registration

    In Canada, a corporation hits a new milestone when it surpasses $30,000 in gross income in a year. At that point, it must register for and charge the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST). Taxable supplies include sales and leases of goods, services and real property. Ensure that you understand these thresholds and register when necessary. Doing so not only keeps you compliant but also allows you to claim input tax credits on GST/HST you pay on business expenses.

    Reporting Changes

    Corporations Canada mandates that federally incorporated businesses notify them of certain changes. This includes alterations to the corporation’s registered office address or its board of directors. These updates are crucial as they ensure that the federal record is accurate and up-to-date.

    Regular Record Maintenance

    Of course, always keep detailed and organized corporate records. This includes meeting minutes, by-laws and resolutions. While this doesn’t directly relate to good standing, it aids in transparency and prepares you for any reviews or audits.

    By staying on top of these responsibilities, you’ll comply with your federal corporation, avoiding potential pitfalls or legal complications. Regularly reviewing the requirements and seeking advice from accountants or corporate lawyers, can provide additional assurance and guidance.

    Federal Incorporations in Canada: The Bottom Line

    We hope to have illuminated the pathway towards successfully incorporating your business at the federal level in Canada. While the journey towards incorporation might present complexities, the destination makes the journey truly worthwhile. Take the first step, and open doors to unbound potential!

    FAQs About Federal Incorporations in Canada

    Should I incorporate federally or provincially?

    The decision to incorporate federally or provincially hinges on your business aspirations. Federal incorporation allows businesses to operate across Canada with a nationally recognized name. However, provincial incorporation might suit better if you primarily plan to operate within a single province. It is also a potentially more cost-effective process.

    What is the difference between federal and provincial incorporation?

    Primarily, you have more reach with a federal incorporation. It gives businesses the right to operate under their corporate name across Canada, offering broader recognition. Provincial incorporation, on the other hand, permits business operations primarily within the incorporating province. That  often makes it ideal for businesses targeting a specific regional market.

    How much does it cost to incorporate federally in Canada?

    Incorporating a business federally in Canada typically costs $200 when you file the articles of incorporation online with Corporations Canada. However, additional fees may arise depending on optional services or if using intermediaries like lawyers or online platforms.

    How to incorporate a federal corporation in Canada?

    Incorporating federally in Canada involves selecting a unique corporate name and obtaining a NUANS report to ensure its uniqueness. Then, you’ll define your business’s structure, including share structure, head office address and board of directors. Afterward, draft the articles of incorporation and other required documents. Once prepared, file the documents with Corporations Canada, paying the $200 fee. After incorporation, ensure you register your corporation in the province where you’ll operate. Finally, set up its finances and keep it in good standing by meeting federal requirements.

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications