Ranked the 10th largest economy in terms of nominal GDP, Canada is an attractive jurisdiction to set up a business due to its low corporate income tax, abundant natural resources, skilled labour force, strong banking sector and stable political landscape. The close proximity and strong bilateral relationship between Canada and the US also mean that businesses incorporated in Canada can easily enter the lucrative US market. Before you proceed to register company in Canada, it is important to understand the types of companies in Canada.
Main types of companies in Canada
#1 Sole proprietorship
- A sole proprietorship can be set up by a single business owner who wishes to gain greater control over his or her business. In a sole proprietorship, the owner and the business have the same legal entity. While this simplifies the business operation, it also means that business owners will be held personally liable for all the debts and obligations incurred by the business if the business is liquidated. As such, business owners can have their personal assets seized by the authority if the assets in the business are unable to cover the debt and losses incurred by the business.
- Unlike companies, a sole proprietorship does not allow for the transfer of ownership and will cease to exist when the business owner dies or chooses to terminate the business. Sole proprietors also do not pay corporate income tax for their business. Instead, they will file the income earned by their business under their own personal income tax return. If you wish to hire employees as a sole proprietor, you will have to register for a Business Number through the Canada Revenue Agency.
- A partnership is formed when two or more co-owners decide to set up a business together. There are two types of partnerships in Canada, namely a General Partnership and a Limited Partnership. In a General Partnership, all partners will be held personally liable for all the debts and obligations incurred by the business. However, this is not the same for a Limited Partnership. A Limited Partnership will have both general partners and limited partners. Only general partners will be held personally liable for all the debts and obligations incurred by the business. They will also be in charge of administering the business. Limited partners will be held liable only to the amount of investment they hold in the partnership. However, a limited partner is not allowed to take part in the operation of the business.
- There is no minimum capital requirement for a General Partnership or a Limited Partnership in Canada. Similar to a sole proprietorship, a partnership is not regarded as a separate legal entity from its business owners. Hence, each partner will only be required to report his or her share of income from the partnership and pay a personal or corporate tax return accordingly. A Canada partnership can easily be formed through a verbal agreement. However, it is recommended to draft a written agreement that set out the rules pertaining to the partnership so that profits are divided clearly between the partners.
- Equivalent to a limited liability company in other jurisdictions, a Canada corporation is a separate legal entity from its business owners. This means that the business can enter into contracts and own assets under its own company name, and business owners will not be held accountable for the debt and liabilities incurred by the business except for the number of shares they hold in the company. A corporation is the most common business entity for Canada company registration. To set up a corporation in Canada, 25% of the directors in your company must reside in Canada. In the case that your corporation has fewer than 4 directors, you must have at least 1 resident director. You will also need to have a registered office address to store and maintain financial records and official documents.
- There are 2 types of incorporation when registering for a corporation in Canada: Federal Incorporation and Provincial/Territorial Incorporation. A Federal Corporation would be administered under the constitution of Canada while a Provincial Corporation would apply the local provincial law based on the province it is registered in.
- A Federal Corporation registration is beneficial if you wish to carry out business activities throughout Canada or enjoy greater legal protection for your business name. Although the registration cost for a Federal Corporation is usually slightly lower than a Provincial Corporation, the annual fees for a Federal Corporation may be higher due to the stricter filing requirements and the need for extra-provincial licenses.
- Generally, Canada corporations pay an annual federal income tax of 15%. Based on the province the Canada corporation is registered in, it will also have to pay an additional provincial income tax that ranges from 9% to 16%.
- A co-operative (co-op) is a corporation that is owned and managed by an association of persons with a joint purpose. This can include providing access to specific goods and services, selling of goods or services, or providing employment.
- While there is no restriction to the function of a co-operative, most co-operative will fall under the following categories: a consumer co-op, a producer co-op, a worker co-op and a multi-stakeholder co-op. A consumer co-op provides products or services such as healthcare or finance services to its members; A producer co-op administers and markets the goods or services produced by its members, or supplies goods required for members to carry out specific business activities; A worker co-op provides employment for its members and usually consists of employees of a company; A multi-stakeholder co-op addresses the needs of different stakeholder groups and is commonly found in the areas of health, home care and other social enterprises.
- A particular co-operative Act regulates the incorporation of all forms of co-operatives in Canada safe for the financial co-operative, which is under a different piece of legislation. These acts apply at the federal, territorial and provincial level and determine not only the way in which the business model of the co-operative functions, but also its nature.
- To set up a Canada co-operative, you must have at least 3 directors and at least a quarter of all members should reside in Canada. In the case where there are only 3 members, at least 1 of them should live in Canada. Generally, directors must be elected by members of the co-operative and no proxy voting is allowed. Essentially co-operatives are voluntary organizations that are governed democratically and open to anyone who uses their services.
How we can help you find the types of companies in Canada best suited to your business
Depending on the goals, structure and activities of your business, the types of companies in Canada that will suit your business may differ. Generally, a corporation is the common choice for foreign company registration in Canada. After you have decided on the type of business entity you wish to set up, the next step is to find out how to register business in Canada.
Tetra Consultants provides you with a fast and simple way to register company in Canada through our service package, which includes registration of your company with the relevant federal or provincial authority; provision of nominee resident directors, local company secretary and a registered address; the opening of a corporate bank account; license application if applicable; and annual accounting and tax services. Tetra Consultants will also recommend the type of business entity suitable for your company, based on your long-term goals and business model.
Contact us to find out more about Canada company registration. Our team of experts will revert within the next 24 hours.