While business opportunities in new markets can be plentiful, incorporating your business internationally requires managing many moving parts. John Tyrrell, a corporate and commercial lawyer who has practiced in association with Caravel Law for over 10 years, shared his expertise with us.
Why might a foreign company choose to incorporate in Canada?
One of the main reasons to re-incorporate a foreign company in Canada, as opposed to just registering your existing foreign business, is to limit your liability and protect your existing business from potential risks. Often foreign businesses looking to operate in a new territory, such as Canada, will incorporate a subsidiary for Canadian operations. By creating a separate legal entity in Canada, you can isolate the liabilities of your Canadian operations from your parent company abroad.
Who should business owners consult before incorporating in Canada?
I suggest clients bring on what I’ll call a team of ‘Canadian advisors’. When I say Canadian advisors, I mean Canadian lawyers, tax advisors and accountants. While this may be somewhat dependent on the nature of the expansion, it is always valuable to have independent tax and accounting advice in addition to your legal counsel.
What does the Canadian incorporation process look like for international business owners?
Much like domestic incorporations (see our blog on domestic incorporations here), there are a few key questions we ask clients to consider in our initial conversations:
- What type of corporation do you want?
There are two main types of corporations in Canada: a standard limited liability company (LTD) and an unlimited liability company (ULC). The main difference between them is how they are treated for tax purposes. Depending on your tax situation and the jurisdiction and structure of your parent company, you might prefer one type over the other. This is an example of where your team of Canadian advisors will be particularly helpful.
2. Will you be incorporating federally or provincially?
This may depend on the nature of your business, however, there are some issues that come up for international incorporations. Some jurisdictions, such as Federal incorporations, require that there is a Canadian resident represented among directors. Depending on a business’s local ties, this could pose a significant issue. In the case where there are no acceptable Canadian residents, business owners may opt to incorporate in a jurisdiction that does not have this requirement, and instead appoint an agent for service (a local representative that can receive legal documents on your behalf).
3. What would you like to name your business?
There is always the risk that the business name you want has already been taken, which can be particularly inconvenient for a company opening a Canadian subsidiary which has established goodwill in their existing name. It is always worthwhile to have a few alternatives in mind in case you are not able to secure your first choice.
- What share structure do you want for the new corporation?
This will depend in large part on whether the new corporation is going to be a wholly-owned subsidiary or a corporation with multiple shareholders. If it’s a wholly owned subsidiary, then we recommend that the authorized share structure be kept simple, a single class of common shares. If there are multiple shareholders then we need to understand the relationships, the goals and expectations of the various shareholders and structure the share capital accordingly. Also, if there are multiple shareholders, we discuss the need for a shareholders’ agreement.
When those questions, among others, have been addressed and dealt with, we can begin the actual incorporation steps. This includes preparing and filing the articles of incorporation and other required notices, such as the notices of directors, registered and records offices and agents for service.
What are the ongoing obligations after incorporation?
After you incorporate in Canada, you must comply with certain obligations to maintain your company’s good standing. These include:
- Filing a corporate annual return;
- Holding an annual meeting of shareholders and directors (or, alternatively, passing resolutions in writing instead of holding a meeting);
- Filing tax returns, both income tax and GST, and paying any taxes that are due. You might also need to apply for a non-resident account with the Canada Revenue Agency, which is a special account for foreign-controlled companies whose shareholders do not have a Canadian social insurance number or tax account;
- Maintaining a transparency register. The transparency register is a document that identifies the ultimate beneficial owners of your company. The transparency register in certain jurisdictions may also require you to disclose information about the directors that will be accessible to the public – this may also impact where a company chooses to incorporate within Canada; and
- Maintaining your Minute Book and updating your registers and records to reflect any relevant changes.
While these are typically the same as annual compliance requirements for domestic incorporations, Canadian requirements and the timing of same may differ from those in the parent company’s operating jurisdiction – you must be familiar with your obligations.
What details are important to keep in mind when establishing business operations in Canada?
Depending on the jurisdiction(s) you are operating in, you may encounter different levels of government and different laws that affect your business. For example, employment law, leasing law, licensing law, and language law differ from province to province, some slightly and others more significantly, especially in Quebec. As you develop and grow your business operations in Canada, you will need to regularly consult with advisors, legal and otherwise, well versed in the requirements of your jurisdiction to keep current on changing laws and regulations. If you expand to other provinces, you may need to add to your team of advisors, to ensure you have access to the necessary expertise on the unique laws of that province. With lawyers in multiple provinces across Canada, Caravel is well-suited to assist you if this need arises!
Canadian businesses may also use different business terms, position titles and practices that you have not used or are not familiar with. It may be advisable to adjust your terminology to align with Canadian practices to avoid any confusion, either with customers or with banking and government agencies where inconsistencies may pose confusion or create additional obstacles.
Getting the entity formed is the tip of the iceberg. Even with a well-established business abroad, tackling an international incorporation can often feel like starting from scratch. Unlike domestic businesses, which may be more familiar with Canadian requirements, foreign entities establishing subsidiaries in Canada will face ongoing challenges. Standard employment contracts, lease agreements, and other commonly encountered documentation will need to be re-assessed through a Canadian lens.
Caravel has a team of over 100 qualified and experienced lawyers, including those specializing in Canadian incorporations for international clients, who can help you navigate Canadian markets. Get in touch with our team today to find out more.