Federal vs Provincial Incorporation in Canada: What’s the Best Choice for Your Business?

The ultimate guide to choosing between federal and provincial incorporation.

Incorporating your business is a big step, but one of the first decisions you’ll need to make is whether to incorporate federally or provincially. If you’re based in Ontario, this decision has important implications for your business’s growth, name protection, costs, and ongoing compliance.

Let’s dive into the pros and cons of federal vs provincial incorporation and help you make the best choice for your business.

Federal Incorporation: What It Means

When you incorporate federally, your business falls under the Canada Business Corporations Act (CBCA). This means that your corporation is recognized across all provinces and territories in Canada. Federal incorporation allows you to operate your business throughout the country under one business name, offering more flexibility and wider reach. But there’s more to consider than just reach.

Pros of Federal Incorporation

1. Nationwide Name Protection
   One of the biggest advantages of federal incorporation is that your business name is protected across all provinces. Once approved by Corporations Canada, no other business in Canada can legally use the same name. This is particularly important if you plan to expand outside Ontario at any point.
2. Lower Upfront and Maintenance Costs
   Contrary to common belief, federal incorporation is often cheaper than provincial incorporation in Ontario. Incorporating federally costs $200 for online filings, compared to $300 for provincial incorporation in Ontario. Furthermore, updating corporate details such as the address or directors is free of charge for federal corporations, while Ontario charges additional fees for each update.
3. Lower Annual Return Costs
   Filing an annual return for a federal corporation costs $12 online through Corporations Canada’s direct platform (ISED-ISDE Canada). This is significantly cheaper than the $25 Ontario corporations pay for the same requirement.
4. Streamlined Online Services
   All federal incorporations and subsequent changes (like updates to directors or business addresses) can be done through the Corporations Canada website. This online system eliminates the need for intermediaries or third-party service providers, which Ontario uses (such as Dye & Durham). This results in fewer administrative fees and a more direct process.
5. Nationwide Flexibility
   If you plan to expand your business into other provinces, federal incorporation makes it easier to register in multiple provinces. Although you’ll still need to complete extra-provincial registrations, the groundwork for expanding across borders is already set.

Cons of Federal Incorporation

1. More Complex Regulation for Certain Professions
   If you’re part of a regulated profession, such as being a Chartered Professional Accountant (CPA), lawyer, physician, or engineer, federal incorporation may not be an option. These professions are often required to incorporate provincially, as they must follow the rules set by provincial regulatory bodies.
2. Annual Compliance and Filing Requirements
   Federal corporations are required to file an annual return every year, regardless of whether there are any changes to the corporation. However, it’s the same requirement for provincial filings, at least as far as Ontario is concerned.

Provincial Incorporation in Ontario: What It Means

When you incorporate provincially, your business operates under the Ontario Business Corporations Act (OBCA), meaning your corporation is only recognized in Ontario. If you plan to focus your business solely within Ontario, provincial incorporation might seem simpler, but it has some trade-offs compared to federal incorporation.

Pros of Provincial Incorporation

1. Local Simplicity
   If you plan to operate exclusively in Ontario, provincial incorporation is straightforward. It’s faster to process, with name approval typically happening the same day you apply. This is especially useful if you’re in a rush to start your business.
2. Simpler for Regulated Professions
   If you work in a regulated profession such as accounting (CPA), law, medicine, or engineering, provincial incorporation is often your only option. Ontario’s regulatory bodies require these professionals to incorporate within the province to ensure compliance with provincial laws.

Cons of Provincial Incorporation

1. Higher Costs
   While provincial incorporation may seem cheaper at first glance, it’s often more expensive in the long run. Ontario charges $300 for incorporation, and there are fees for every corporate change, such as updating directors or your business address. Annual returns for an Ontario corporation cost $25 per year versus $12 for a Federal corporation. These fees can add up over time, especially if your corporation goes through multiple changes.
2. Limited Name Protection
   Provincial incorporation only protects your business name within Ontario. If you expand to other provinces, there’s no guarantee that your business name won’t be taken. If you expand beyond Ontario, you may face the possibility of having to rebrand, which can be a costly and time-consuming process.
3. Outsourced Services
   In Ontario, incorporations and corporate updates are managed through third-party service providers like Dye & Durham. This can introduce additional fees and complexity, as you’re dealing with an intermediary rather than directly with the government.

Federal vs Provincial Incorporation: How to Decide

Here’s a simple guide to help you choose:

• Where do you plan to operate?
  If you plan to operate only in Ontario and expect minimal changes in your corporation’s structure, provincial incorporation might be right for you. It’s quick and local.
• Are you operating your business in a regulated profession?
  If you’re in a regulated profession such as law or engineering, your choice is often made for you. You’ll need to incorporate provincially due to industry-specific regulations.
• Do you have plans for national or international expansion?
  If you have expansion in mind, federal incorporation is the way to go.
• How important is nationwide name protection to you?
  You’ll also benefit from nationwide name protection under a federal incorporation, which is key if you’re planning to operate in multiple provinces.
• What’s your budget for incorporation and ongoing maintenance?
  If you want to save on upfront incorporation costs, expect to make frequent changes (like updating addresses or directors), and want to pay less for annual returns, federal incorporation offers significant cost advantages and streamlined online services.

Final Thoughts

Choosing between federal and provincial incorporation depends on your business goals, how much you’re willing to spend, whether you operate in a regulated vs an unregulated profession, and how you plan to expand in the future. Federal incorporation tends to be cheaper in the long run, especially for businesses with plans to grow beyond Ontario.

Still have questions? It’s best to incorporate with a corporate lawyer to make the best decision for your business, while a tax expert on our team can provide advice on share classes and other attributes from a tax structure perspective.