There are a number of different types of corporations that can be created within Canada, all of which have differing benefits and disadvantages in terms of tax law. The type of corporation that a company decides upon determines specific tax deductions and rates that the corporation will be eligible for.
Business enterprises can be incorporated to be governed by either territorial, provincial or federal law. Those companies governed by federal law are known as Canadian Federal Corporations. These companies will operate from the legislature laid out in the Canada Business Corporations Act.
There are a wide range of benefits related to incorporating a company to be a Canadian Federal Corporation. For one thing, a federally incorporated company is able to conduct business across the entire nation of Canada, although certain local registration requirements may still apply. Secondly, all federal corporations in the country have names that are protected and copyrighted, under the Canada Business Corporations Act. This means that no other business can assume the exact name, or a name that is similar (that could be confused) to your company.
Canadian Federal Corporations also hold significant responsibility, however. Corporations falling under federal corporate legislation place the directors of the corporation with the legal duty of managing the business affairs of the company in a manner that is honest, ethical and in keeping with the laws of the nation of Canada, with the corporation’s best interests in mind. Investors have access to legal recourse if they feel that the directors of the corporations are acting in a manner that is dishonest, unethical or unlawful.
Restrictions of Canadian Corporations
Canadian Federal Corporations may not:
- Provide banking or other financial services without the necessary licenses and registration.
- Provide investment services other than the investment of the corporations own assets without the appropriate license.
- Sell shares to members of the public, or solicit funds from the public, without the necessary license.
All Canadian Corporations must conduct business and submit corporate documentation in English and/or French, and must maintain a registered office address within the borders of Canada.
If you have decided to incorporate your business federally, there is a strict process that should be followed. The first step is to complete the required documents and file these with Corporations Canada, the organization that will register your company as a federal corporation. Filing these documents can be done online, through the Corporation Canada website.
If you do not want to handle the incorporation yourself, you can use the services of a lawyer, or of an online incorporation service, such as Corporation Centre.
Documents Needed to Incorporate your Company
As part of your application process, you should include the following documents:
- Initial Registered Office Address and First Board of Directors Form
- Articles of Incorporation
- Proof of Payment of the filing fee of $200
- NUANS Name Search Report for approval of your company’s name
- Corporate Name Information Form (not compulsory, but highly recommended)
Once you have submitted your application and the required documentation, Corporations Canada will consider your application and your proposed name. If everything is in order and your name is acceptable, you will be sent a Certificate of Incorporation, as well as your individual Corporation Key. This key is used to enter specific information online, for example if you need to change your registered address on the Corporations Canada Online Filing Center.
Naming Your Corporation
There are specific name restrictions applicable to Canadian Federal Corporations. Names will not be accepted if they are the same, or similar to, the name of an existing registered company. A name will also not be accepted if it implies illegal activities, or implies government patronage.
Certain terms in a name will require justification in order to be accepted. For example, the use of words implying international business operations, such as ‘International’, will only be allowed if it can be proved that the corporation does indeed have an international presence, and is not operating solely in Canada.
Certain words implying a company’s activities may need special consent or specific licenses in order to be used. Examples of these include but are not limited to: savings, bank, loans, insurance, co-operative, Chamber of Commerce, finance, council.
Information on Shares in Canadian Federal Corporations
All Canadian Federal Corporations should, in order to comply with federal business law, have a minimum of $1 worth of authorized share capital. This is the minimum capital duty that must be paid on incorporation of your company.
It is mandatory for any corporation that conducts business within Canada, or trade in taxable property in Canada, to complete and file a T2 income tax return sheet annually. This legislation is also applicable to non-profit organizations, inactive corporations and corporations that are exempt from tax.
Certain provinces such as Alberta, Ontario and Quebec have separate provincial taxation systems. Corporations that operate within these provinces will have to file both provincial and federal income tax returns.
Financial statements of income and business generated are required by law to be filed and audited with the Canada Revenue Agency (CRA). The CRA may call for financial records of any corporation to be inspected at any time. Failure to produce such audits can result in imprisonment or a fine.