Federal vs. Provincial Incorporation

Thursday, August 23, 2012

What's the ideal structure for your new company?

There are two types of incorporation available for new businesses in Canada;

1) provincial incorporation

2) and federal incorporation

The difference between the two types of incorporation lies in whether you want to do business locally or nationally. With a federal incorporation, you will have better protection of your brand and the ability to do business all across Canada even though there may be a business with the same name in a province.

With provincial incorporation, you can only operate in the province that you’ve incorporated in. This means that your brand is not protected outside of your province. This does not restrict you from doing business with companies in other provinces, however, you won’t be able to protect your name outside of your province or territory.

There are a couple of downsides to federal incorporation though.

· First, federal incorporation involves more paperwork to be filed every year as required by the Canadian Government and also provincial filings in the province that you’re registered in.

· Secondly, federal incorporation costs more. The fee for filing federal Articles of Incorporation is $200, as well as the additional fees from name search reports and registering your company in province. Also, the ongoing paperwork each year will cost you more than maintaining your provincial incorporation.

If you plan to be a small business - operating locally, it makes no sense to spend the money to do a federal incorporation. However, if you’re a business that has clients across the nation and even in other countries, it would be a good idea to do a federal incorporation. If you’re an ecommerce business, where you don’t need a physical location to do business, you don’t need to be federally incorporated if you’re just operating from one province. You can always be provincially incorporated now and then change to a federal incorporation later as your business grows.