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Ontario Corporation vs Federal Corporation: What is the difference?

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Provincial (Ontario) Corporation vs Federal (Canada) Corporation: What is the difference?

What is the difference between a incorporating under the Ontario Business Corporations Act (OCBA) and incorporating under the Canada Business Corporations Act (CBCA)?

Many clients ask, what is the difference between Federal Corporation and Ontario Corporation? These two pieces of legislation are almost identical, with very few minor variances. This is because the Ontario Business Corporations Act (OBCA) was modeled after the Canada Business Corporations Act (CBCA) CBCA to create uniformity across corporate law in Canada and its provinces. The Federal Corporation is governed by the Canada Business Corporations Act (CBCA) and an Ontario Corporation is governed by the Ontario Business Corporations Act (OBCA).

The minor variances between incorporating under the Ontario Business Corporations Act and the Canada Business Corporations act can be reduced to geographical scope of your operations, name availability, cost, and turnaround time.

Geographical Scope: Is your Corporation a National or Provincial Enterprise? The most important determining factor for business founders to consider when deciding whether to incorporate provincially or federally is whether their operation is a national or local enterprise. Under the Canadian Business Corporations Act, a corporation may establish businesses, receive profits and market itself across Canada. This is a good option if the founders want to establish an international presence and garner familiarity, prestige, and recognition in foreign jurisdictions.

Residential Locations of Directors and Shareholders: The location of the directors and shareholders, as well as their ability to travel, is an important consideration when deciding between incorporating under the Ontario Business Corporations Act or the Canadian Business Corporations Act. Both statutes require that annual director and shareholder meetings are mandatory and that at least 25% of the directors reside in Canada.

Under the Ontario Business Corporations Act, quorum exists where the holders of a majority of the voting shares are present or represented by proxy. The CBCA, by contrast, provides more flexibility by recognizing quorum even where shareholders or directors are present electronically or over conference call. This is useful for founders where the directors and shareholders of the company are not in the same city.

Name Selection: When you go to incorporate a company the government must first know if that name has been taken. You cannot incorporate a company with a name that is exactly the same as another name already registered. In order for the government to ensure that the name is free to use it needs to see a NUANS name search report or similar name search report depending on the jurisdiction.

The report will show the government whether there is an exact name already registered for the proposed name you wish to use. The name search report is also your way of determining whether there are additional conflicts to your name. The onus will be on you to look over the entire report and make sure you are not proposing to use a name that is even close to another corporate name or trade-mark since the owner of the name could still have a claim against you if your name is too similar and his or her company name has had a large presence in the marketplace for many years.

When incorporating under the Ontario Business Corporations Act, the name selection is self-policing; that is, the name chosen by the person seeking to incorporate simply needs to be available under Ontario laws. Seeking a name under the Canada Business Corporations Act Name is decided by government examiners based on availability across Canada.

Turn-Around Time: Because the name selection under the Canada Business Corporations Act is decided by government examiners based on availability across Canada, turn-around time is usually longer than selecting a name under the Ontario Business Corporations Act. That being said, because government examiners are integral to selecting the name, this also offers enhanced name protection.

Cost: Incorporating under the Ontario Business Corporations Act costs $350 versus $200 under the Canadian Business Corporations Act. While incorporating under the CBCA is cheaper upfront, there may be more onerous filing requirements for corporations that incorporate under the CBCA but only carry on their business in Ontario.

Convenience: The advantage of incorporating under the Ontario Business Corporations Act is that it combines both the tax and the annual filing requirement into one form. This means that corporations are responsible for just one filing per year. In addition to simplicity, this bundled process reduces legal and accounting fees.

The Canadian Business Corporations act requires founders to file two returns: one annual return and one tax return each year at a cost $20-$40 each. Federally-incorporated businesses carrying on a business in Ontario need to comply with the filing requirements of the Corporations Information Act and the Business Names Act in Ontario.

Please refer to our info-graphic below for a summary of the advantages and disadvantages to incorporating federally versus provincially

Ontario vs Federal Incorporation
(click to enlarge

F.A.Qs:

What are the main advantages of federal incorporation versus provincial incorporation?
There is greater name protection, increased global recognition of a federal charter, and a lower government incorporation fee.
What are the main advantages of provincial incorporation versus federal incorporation?
Easier to find an available name, faster incorporation turn-around time, and no need to file an annual return each year.

For more information on the advantages and disadvantages of Provincial (Ontario) Corporation and a Federal (Canada) Corporation and for assistance in selecting your type of corporation, Contact Us to speak with one of our business lawyers.


-Shira Kalfa, BA, JD, Partner and Founder

© Kalfa Law 2020

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.

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