Businesses that wish to incorporate can choose between going through the federal or the provincial process. The primary difference between the two methods are in the:
- Protection of company name rights
- Ability to conduct business in all provinces
- The overall cost to initiate and renew incorporation
The incorporation process—both federal and provincial—allows for the separation of company and private individual finances. Incorporation involves completing and submitting various documents, creating internal business structures and shares of company stock, and submitting the necessary fees.
You can incorporate your business in a single Canadian territory or province. Each provincial incorporation is a stand-alone process. The country is separated into areas—much like a state in the U.S.—and include Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, Northwest Territories, Nunavut, and Yukon.
Once incorporated in one of the areas, you may secure your company's name and conduct business in that sector. To do business in another province, you will need to register with that authority.
The Advantage of Federal Incorporation
The main difference between federal and provincial incorporation is that federal incorporation gives your business increased business name protection and wider rights to carry on business throughout the entire country.
Federal incorporation of your business means that you will be able to do business all across Canada under the same business name, even if some other company is already using a similar name in some province or territory. So if your federally incorporated business is named XYZ Inc., your company can do business in any province or territory as XYZ Inc., even if there are other companies with identical names operating in those same provinces or territories.
This is not the case with provincial incorporation. When you incorporate your business in a particular province or territory, you are only entitled to operate your business in that jurisdiction and have no name protection outside that province or territory.
Sure, if you incorporate your business in Ontario, and then want to do business in Manitoba, you can register your Ontario corporation in Manitoba so you can do that, but there's no guarantee that there won’t be other businesses of that name or a similar name operating there—meaning that your company may not be able to operate in that province under your chosen name at all.
And one more advantage—when you're considering federal incorporation vs. provincial incorporation in Canada, in their Frequently Asked Questions on Federal Incorporation, Corporations Canada points out that federal incorporation has a cachet that provincial incorporation doesn't and gives a company global recognition.
The Downside of Federal Incorporation
When you read the above information about the difference between provincial and federal incorporation, you may wonder why everyone who wants to incorporate in Canada doesn't just incorporate federally. That may be because the downside to federal incorporation is it takes extra work and money.
Although provincial and federal incorporation is an "either-or" proposition, if you choose federal incorporation, you will need to register your business in any province or territory where you carry on business. Note that when you complete the federal incorporation process through Corporate Canada’s Online Filing Centre, you will have the option of filling out extra-provincial registration forms for Saskatchewan, Ontario, Nova Scotia, and Newfoundland and Labrador.
Federal incorporation will involve more paperwork every year, as you will need to comply with the corporate filings required by the federal Director of Corporations Branch and all filings required by the provinces that your corporation is registered in.
Federal incorporation may cost more. While the current filing fee for federal incorporation (filing Articles of Incorporation) is $200 if filed online through Corporations Canada's Online Filing Centre, and the cost of a NUANS Name Search Report is approximately $75 per search, there may be additional fees resulting from the need to register your corporation extra-provincially and extra costs incurred because of the additional annual paperwork required.
The Bottom Line
Federal incorporation can be an excellent choice if your business needs the nation-wide business name protection that federal incorporation provides, or if your business is or will be operating internationally. If your business is and plans to be operating primarily within one province, provincial incorporation may be enough for you. Remember, you can always provincially incorporate now and then change to federal incorporation later.