Business entities in Canada
There are several types of business entities available to do business in Canada, and the procedures and requirements to register each of them slightly vary between provinces. To do business in Canada, the option most commonly chosen by foreign entrepreneurs is the limited liability company, locally known as a private corporation. Limited liability partnerships are also increasingly popular, as an efficient and relatively simple structure which also legally allows to minimize Canadian corporate income tax. Please find below more details what is required to form each Canadian business entity and the business needs they enable our Clients to meet.
Doing business in Canada with a local entity
The Canada limited liability company (private corporation)
- A Canadian private corporation can be registered by a minimum of one or two shareholders depending on the province of registration, and with a minimum capital of only US$1 (CA$1). All provinces except i) British Columbia ii) New Brunswick iii) Quebec iv) Yukon and v) Nova Scotia additionally require appointment of one resident director. If required, Healy Consultants will be pleased to supply nominee services for professional passive resident director to comply with this Government regulation;
- Following business setup, a Canada company is required to file an annual tax return and financial statements. Audit requirements vary between provinces, but legal exemptions usually can apply to small and medium businesses;
- Best uses for a Canadian limited liability company: the Canadian limited liability can be used to conduct most types of businesses activities in Canada. It is the optimal type of business entity for most of our Clients willing to do business in this country.
The Canadian limited liability partnership
- Only Ontario and British Columbia currently provide for the registration of limited liability partnerships, which require the appointment of i) at least one general partner, who however can benefit from limited liability to the partnership’s losses and debt in many instances and ii) limited partners, who benefit from “full” limited liability. There is no requirement to appoint resident partner(s) or manager;
- In other Canadian provinces, local regulations either do not provide for the registration of limited liability partnerships (only limited partnerships) or strictly restrict their use to lawyers, accountants, doctors and other regulated professions;
- Both limited and limited liability partnerships are tax transparent entities, meaning that earnings are deemed automatically distributed to the partners and must be included in their personal/corporate income tax statements. A statement of income must however still be prepared and filed by the partnership to the local tax authority;
- Best uses for a Canadian limited liability partnership: while Canadian LLPs have recently become a popular alternative to the registration of a company for foreigners, Healy Consultants recommends our Client to carefully weigh their advantage (tax transparency) and their risks (increased liability for the general partner, possibility that the entity has to deduct Canadian withholding tax from payments to partners) before opting to register such entity.
The Canada public limited company (public corporation)
- Canadian public corporations are essentially the same type of business entity as the above described private corporations. Only significant difference is their M&AA will allow to issue freely transferable shares. They require the same amount of paid-up capital (CA$1) upon incorporation and can also be formed by foreigners, provided one resident director is appointed in the provinces which require so;
- Best use for a Canada public limited company: forming a Canada public corporation is usually done when the company owners are planning to finance their business by raising capital on the Toronto Stock Exchange or the Canada Securities Exchange or by issuing shares to third party investors.
Doing business in Canada with a foreign entity
The Canada branch office
- Canada regulations allow for the registration of branches of foreign companies, but may subject the foreign company (and not only its branch) to local regulations. Consequently, Healy Consultants suggests our Clients to either i) register a subsidiary or ii) if they are not comfortable with the same, to register a special purpose vehicle abroad (usually a LLC) which they will then use to register the Canadian branch;
- Registration of a branch requires the appointment of a resident to act as the foreign company representative in Canada. If needed, Healy Consultants supply nominee services for professional passive resident representative to comply with this Government regulation;
- Best uses for a Canada branch: registering a branch instead of a separate subsidiary enables our Client to minimize accounting and bookkeeping obligations, as the accounts of the head office and the branch will be the same. Our Clients should however be cautious when opting for a branch, as their foreign company will bear unlimited liability for the debts and losses of the Japanese branch.
The Canada representative office
- Canada does not formally recognize representative offices, which are de facto treated as a branch and hence subject to the same tax return and financial statements filings obligations. No Canadian corporate income tax is however payable provided the representative office can demonstrate it only engaged in i) market research and ii) promotion the business of the parent company;
- Best uses for a representative office: registering a representative office is usually used to “test” the Japanese market, before registering a branch or a subsidiary.
Table of comparison between different entity types
Operations and logistics LLC LLP PLC Branch RO Also know as Private corporation LLP Public corporation Branch Non trading branch Doing business in Canada permitted? Yes Yes Yes Yes No Allowed to sign contracts with local Clients? Yes Yes Yes Yes No Allowed to invoice local Clients? Yes Yes Yes Yes No Local office premises required before registration? Yes Yes Yes Yes Yes Virtual office suffice to meet the above requirement? Yes Yes Yes Yes Yes Allowed to import raw materials? Yes Yes Yes Yes No Allowed to export goods? Yes Yes Yes Yes No Accounting and tax Corporate tax on local income? See this page 0 See this page See this page 0 Corporate tax on foreign income? Yes No Yes No No Statutory audit required? No No No No No Annual tax return to be submitted? Yes No Yes Yes Yes Access to DTAAs? Yes No Yes Yes No Company law Issued share capital required? US$1 US$2 US$1 None None Resident director/representative required? Depends on the province Depends on the province Depends on the province Yes Yes Canada shareholder required? No Depends on the province No No No Minimum number of directors? 1 1 1 1 1 Minimum number of shareholders? 1 1 1 1 1 Individual shareholders allowed? Yes Yes Yes No No Corporate shareholders allowed? Yes Yes Yes Yes Yes Public register of shareholders and directors Yes Yes Yes Yes Yes Immigration Can the entity hire expatriate staff? Yes Yes Yes Yes Yes How long to get work permit approved 3 months 3 months 3 months 3 months 3 months Fees and timelines How long to set the entity up? 3 weeks 3 weeks 3 weeks 3 weeks 3 weeks How long to open corporate bank account? 4 weeks 4 weeks 4 weeks 4 weeks 4 weeks Estimate of engagement costs US$12,100 US$12,500 US$12,100 US$13,100 US$12,100 Draft invoice