Business organizations in Canada: Choosing the right structure for your Canadian operations 

Who this is for: CFOs, GCs, and regional directors at foreign companies evaluating their first Canadian market entry, and corporate counsel structuring a Canadian subsidiary, branch, joint venture, or acquisition.  

The structuring decision that most foreign companies underestimate: Foreign companies entering Canada frequently treat the choice of legal vehicle as an administrative step, something to be resolved quickly so that operations can begin. It is not. The decision between a Canadian subsidiary and a branch, between federal and provincial incorporation, and between a corporation and a partnership or limited partnership has direct consequences for your liability exposure, your Canadian and home-country tax position, your governance obligations, your director residency requirements, and your Quebec transparency and Investment Canada Act filing obligations. Each of these dimensions needs to be assessed before the first Canadian transaction closes, the first Canadian employee is hired, or the first Canadian contract is signed. 

In this article:

1. Introduction 

There are a number of different legal vehicles through which a foreign corporation or other foreign entity may carry on business in Canada. In choosing a particular legal vehicle, the tax consequences in Canada and in the relevant foreign jurisdiction should be considered. Non-tax factors such as limited liability, governance, public disclosure, registration requirements and regulatory approvals should also be taken into account. For foreign entrants, the initial structuring exercise typically includes deciding whether to incorporate a Canadian subsidiary, establish or register a branch, carry on limited activities without a fixed place of business, or use another form of business organization, and then confirming any extra-provincial registration, Quebec transparency and Investment Canada Act filing or review requirements. The most frequently used business organization in Canada is a corporation with share capital. Partnerships, limited partnerships, business trusts and co-ownerships are also common. 

2. Corporations 

A Canadian corporation is a separate legal entity. A corporation also generally has the capacity of a natural person. This means that a corporation can enter into contracts or own property in its own name, separate and apart from the individual owners of the corporation. This generally provides limited liability protection to the shareholders as owners of the corporation. 

Most corporations in Canada are incorporated as corporations with share capital under the federal, provincial or territorial business corporations’ statutes. These statutes provide comprehensive legislative rules dealing with incorporation, amalgamation, liquidation, other fundamental corporate structure changes, share capital, the rights and obligations of shareholders and directors, books and records and other matters. 

Incorporating under a business corporation’s statute is usually a simple process effected by filing Articles of Incorporation (or a similar document) with the relevant government authority and paying a filing fee. The Articles of Incorporation generally set out the name of the corporation, the authorized share capital, the terms of different classes of shares, restrictions on the transfer of shares, the number of directors who are to control the corporation and the names of the first directors along with certain other provisions. 

The Articles of Incorporation are a public document  and can often be filed electronically. Other than in British Columbia, more detailed rules for the operation of the corporation (for example, quorum for directors and shareholders’ meetings, notice requirements for such meetings, etc.) are contained in the by-laws, which are typically not a public document. 

• A corporation is not permitted to incorporate using a name which is the same as or similar to the name of another corporation or entity.
• A corporation carrying on business in Quebec must use a French version of its corporate name. This requirement applies to federal corporations operating in Quebec, not only to Quebec-incorporated corporations. Therefore, foreign companies should confirm their French corporate name before commencing Quebec operations, not after the first Quebec regulatory filing. 
• A corporation may incorporate under a number name (e.g. 123456 Ontario Inc.) whereby the number is assigned on incorporation by the governmental authority. Incorporating under a specific name provides some rights with respect to that name, but this is not equivalent to the rights that flow from a trademark registration. 
• Corporations with share capital incorporated under the business corporations’ statutes can have different classes of shares with different rights. The business corporations’ statutes provide significant flexibility in setting the terms of different share classes. There is no minimum or maximum dollar amount of share capital required. 

a. Federal or provincial/territorial incorporation 

Corporations incorporated under the federal Canada Business Corporations Act  (the “CBCA”) or under the business corporations’ statutes of the provinces and territories can carry on business throughout Canada. The choice of jurisdiction of incorporation will therefore often depend on the planned location of operations, convenience of dealing with the relevant government department for filings, applicable Canadian resident director requirements, corporate name considerations, governance preferences and the public information that must be filed in the applicable jurisdiction. 

If a corporation is incorporated in one jurisdiction and carries on business in another jurisdiction, it generally must register extra-provincially in the other province or territory. This registration is usually a straightforward process, but it may require appointment of an attorney or agent for service, maintenance of a local registered office or address, annual renewals and payment of registration or filing fees in each jurisdiction where the business is carried on. Foreign companies that establish operations in multiple provinces without completing extra-provincial registrations face the risk of being unable to enforce contracts in those provinces and exposure to penalties for carrying on business without registration. 

CBCA vs. provincial incorporation – the practical choice for foreign companies 

The CBCA is often chosen because it may provide greater mobility in moving operations or registering new business locations across Canada. However, the CBCA retains a 25% Canadian-resident director requirement that most provincial jurisdictions have eliminated. For a foreign company whose management team is entirely outside Canada, incorporating under a provincial statute, such as Ontario, British Columbia, Alberta, or Quebec, avoids the need to find and appoint a Canadian-resident director, which can add cost, complexity, and governance risk. The optimal choice for a foreign entrant should be assessed alongside tax planning, director residency, governance arrangements, and the provinces or territories in which the business will operate.  

b. Types of corporations 

Federal and provincial legislation allow for corporations with share capital (which are generally incorporated under the business corporations’ statutes) and non-share capital corporations. The latter are used for charitable and non-profit activities. 

Nova Scotia, Alberta, Prince Edward Island and British Columbia have legislation allowing for the incorporation of unlimited liability companies. The unlimited liability company (“ULC”), as the name suggests, does not provide limited liability protection for the shareholder in the same way as a business corporation. A ULC is a separate legal entity under Canadian corporate law and is treated as a separate corporation for Canadian income tax purposes. The hybrid nature of the ULC for Canadian and US income tax purposes has proven to be a popular tool for cross border tax planning. The Canadian income tax consequences of using a ULC should be carefully considered because of the anti-hybrid rules in the Canada-U.S. Income Tax Convention, and rules that Canada recently announced will be introduced to deny the deductibility (or result in an income inclusion) of certain cross border payments made by ULCs where there is, for example, no corresponding inclusion in the income of a non-resident recipient of the payment. Canada enacted similar legislation that came into effect on June 20, 2024 to deny the tax benefits associated with “hybrid instruments”. Foreign companies considering a ULC structure should obtain current Canadian and US tax advice before selecting this vehicle, the anti-hybrid rules have materially changed the analysis since the ULC became popular. 

Corporations which offer their shares to the public are subject to additional rules and regulations under the relevant securities legislation in each province. For more information, please refer to Canadian securities laws. 

c. Residency requirements for directors 

This is one of the most practically significant differences between CBCA and provincial incorporation for foreign companies, and one of the most commonly overlooked.  

The CBCA, Manitoba, and Newfoundland and Labrador require that at least 25% of a corporation’s directors be resident Canadians; where there are fewer than four directors, at least one must be a resident Canadian.  

Alberta, Ontario, British Columbia, Quebec, Yukon, Nova Scotia, New Brunswick, Prince Edward Island, Nunavut, and the Northwest Territories do not have a residency requirement for directors. The elimination of residency requirements is said to improve the business environment and attract a greater number of investors in these jurisdictions. 

d. Rights and obligations of directors 

A non-offering corporation does not need to have more than one director. Directors are not required to own shares in the corporation. 

Directors have a duty to act honestly and in good faith with a view to the best interests of the corporation. They must also exercise their powers with the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Their decisions must be in accordance with the governing statutes, regulations, incorporating documents and any shareholder agreements that the corporation may be subject to. If there are any conflicts of interests between the directors and the corporation, these must be disclosed by following stringent disclosure requirements in the governing legislation. Foreign entrants should ensure that Canadian governance arrangements give directors sufficient information and authority to satisfy these duties while preserving appropriate parent-company oversight. 

Directors can be personally liable in certain circumstances, including to employees for unpaid wages owing, and to the tax authorities for unremitted employee source deductions, non-resident withholding tax and HST. Directors’ and officers’ liability insurance is often purchased by corporations in respect of these and other potential liabilities. 

e. Directors’ and shareholders’ meetings 

Both shareholders’ and directors’ meetings can be held in person inside or outside of Canada, via telephone or via other electronic means, a flexibility that is particularly relevant for foreign-owned Canadian subsidiaries whose directors and shareholders are located outside Canada.  

Meetings of directors can be held at any time as long as they comply with the notice requirements set out in the governing documents of the corporation. Meetings of shareholders are held at least annually at a place determined by the directors or as indicated in the corporation’s governing documents. All jurisdictions governing corporations in Canada mandate an annual shareholder meeting for matters of fundamental importance to the corporation. This often includes the election of directors, the appointment of an independent auditor and a review of the corporation’s financial health. Apart from this mandatory, annual meeting, shareholders may requisition a meeting under certain circumstances and by following the guidelines stipulated by the corresponding legislation that governs the corporation. 

The financial statements of a private corporation can be audited or unaudited, while offering corporations (i.e., a corporation that offers its securities to the public) must have audited financial statements. The financial statements of an offering corporation are required to be filed with the applicable securities regulatory authorities. A business corporation’s statutes allow directors’ and shareholders’ resolutions to be passed by written resolution signed by all the directors or shareholders, as the case may be. Written resolutions in lieu of meetings are commonly used for private corporations. 

f. Directors’ and shareholders’ resolution 

Shareholders’ and directors’ resolutions are typically not available to the public. Directors’ resolutions are the formal decisions formed by a vote that are made at a directors’ meeting. The board of directors are charged with handling the organization’s daily operations and thereby discuss and decide on matters such as past performance, strategic goals and formal plans of action.  Shareholders’ resolutions are the decisions made in a shareholders’ meeting which, as with directors’ resolutions, are made by vote. 

There are two different types of resolutions in shareholder meetings:  

• an ordinary resolution that requires a simple majority and involves matters of a lesser degree of importance, such as electing directors or appointing an auditor. 
• a special resolution that requires the approval of two-thirds of the votes cast by either group of voters. 

This latter form of resolution involves making a fundamental change in the corporation, such as an amalgamation of corporate entities or amending the Articles of Incorporation. 

g. Shareholder agreements 

Shareholders’ agreements are commonly used to address corporate governance issues. They are much like by-laws that require no public disclosure. Topics often covered in the shareholders’ agreement include the management, control and governance of the corporation, including reserved matters, approval thresholds, transfer restrictions, information rights, exit rights and dispute resolution.  

A sub-category of shareholders’ agreements is the unanimous shareholder agreement (“USA”). A USA may cover a multitude of topics which include a limitation on the powers of the directors as per the governing legislation. If a USA were to restrict certain powers of the directors, the shareholders would then become liable for the fulfillment of these directors’ duties instead. In other words, a USA may simultaneously limit the liability of directors while expanding the potential liability of shareholders. For a foreign entrant investing with Canadian co-investors or management, the shareholders’ agreement is often a key tool for aligning control, minority protections and reporting obligations with the chosen Canadian entity structure. 

For a foreign entrant investing with Canadian co-investors or management, the shareholders’ agreement is often the most important document in the Canadian corporate structure, since it is the primary tool for aligning control, minority protections, information rights, and reporting obligations with the foreign parent’s governance requirements. Foreign companies should not rely on the standard corporate statute defaults to protect their interests as shareholders. 

h. Disclosure requirements in public corporate filings 

A non-offering corporation is generally not required to publicly file its financial statements. An offering corporation is generally required to file its financial statements with the relevant provincial securities regulatory authority. 

All corporations must generally make information filings (which are available to the public) identifying their directors, officers and registered office. Shareholders generally do not have to be disclosed in these information filings. However, certain beneficial ownership and significant control disclosure requirements apply at the federal level under the CBCA and in Québec under the LPA, discussed below. 

3. Partnerships 

A partnership, unlike a corporation, is not a separate legal entity but rather a relationship between persons carrying on business together with a view to profit. Partnerships are governed by partnership legislation (which is all provincial) and, where one exists, a partnership agreement. Partnership agreements are generally not public documents. 

A detailed partnership agreement is advisable to clearly set out the governance and operational rules for the partnership and to oust certain legislative rules that apply in the absence of agreement to the contrary. 

There are three types of partnerships in Canada: 

• General partnerships: all partners are jointly and severally liable for the liabilities of the partnership. For foreign entrants, a general partnership with a Canadian entity or individual creates direct joint and several liability exposure, there is no liability shield equivalent to a corporation. 
• Limited partnerships: the general partner is liable for the liabilities of the partnership. Limited partners are only liable for their agreed upon capital contribution, unless they lose their limited liability protection by becoming involved in the management of the partnership business. It is common to use a sole-purpose corporation as the general partner of a limited partnership that will have a nominal profit/loss participation in the limited partnership. Formation of a limited partnership also requires a public filing. 
• Limited liability partnerships: may only be used by certain regulated professionals (e.g., law firms and accounting firms), and it provides certain limited liability to its partners with respect to the negligence of other partners. 

4. Other ways to carry on business in Canada 

a. Branch 

Instead of forming a Canadian corporate subsidiary, a foreign entity can conduct business in Canada by establishing a branch (i.e., a fixed place of business like an office). In this case, the foreign entity is carrying on business in Canada directly. A branch may be appropriate where the foreign entity wants to avoid maintaining a separate Canadian subsidiary, but it can expose the foreign entity directly to Canadian contractual, tax, employment and regulatory obligations. By contrast, a Canadian subsidiary may provide a separate liability profile, local contracting vehicle and clearer governance structure, but will involve incorporation, corporate maintenance and Canadian tax and reporting obligations. 

b. Carrying on business in Canada directly without a branch 

Some foreign entities conduct business in Canada without establishing a fixed place of business. This may be done by way of electronic commerce and/or by use of employees or agents who come to Canada for short periods to see customers and potential customers. Even without a fixed branch, the foreign entity should consider whether its activities constitute carrying on business in a province or territory for registration, tax, employment, licensing or consumer-protection purposes. The Canadian tax consequences of this approach are discussed further below. 

c. Business trusts 

Business trusts are mostly encountered as mutual fund trusts, real estate investment trusts, and income trusts, which issue securities in the public securities markets. A business trust may operate as a partner in a partnership or as a shareholder in a corporation with accompanying tax consequences. 

d. Co-ownerships 

Co-ownerships are commonly used in the real estate joint venture context, and provide for each co-owner to hold an undivided percentage interest in the whole. 

5. Registering a business 

Corporations, partnerships and certain other forms of businesses may have varying registration requirements, depending on the governing jurisdiction. All forms of businesses, save for sole proprietorships operating under the sole proprietor’s name, are required to register their business’ name.  

a. Corporations 

A corporation is required to research its corporate name prior to governmental approval by using the corresponding search system of the provincial or federal jurisdiction. Corporate names must end with a legal element indicating the business is a corporation. This includes one of the following: Limited (Ltd.), Incorporated (Inc.), or Corporation (Corp.). 

Each name search, the Articles of Incorporation, and the corresponding filing fee must be submitted to the appropriate government agency before the corporation is created. Barring any statutory compliance failures, the corporation will be registered by the government. A Certificate of Incorporation will be issued to the corporation by the relevant jurisdiction on the date the corporation comes into existence. 

b. Partnerships 

Much like corporations, partnerships are required to register their business name in their relevant jurisdiction. Some jurisdictions may penalize partnerships that have failed to comply with such requirements such as refusing to uphold court actions initiated by unregistered businesses. 

General partnerships may come into existence in spite of any registration requirement in certain Canadian jurisdictions. For instance, in Ontario, a partnership is formed when two or more people conduct business in common with a view to profit. Other forms of partnerships do require registration. A limited partnership must be registered with the relevant government authority. The registration requirement would include such details as the names of the minimum number of required general and limited partners in the limited partnership. A limited liability partnership similarly requires registration. Prior to registering this form of business, permission must be obtained from the governing body of the profession (only a limited number of professions may register as an LLP in Canada). 

Extra-provincial registration 

Each province and territory has its own registration requirements. As such, when conducting business through an extra-provincial corporation, partnership or other form of business, the relevant jurisdiction’s legislative registration requirements must be adhered to. Foreign entrants should assess extra-provincial registration early, particularly where they will have employees, agents, offices, warehouses, significant sales activities, licences or other indicia of carrying on business in more than one Canadian jurisdiction. 

6. Investment Canada Act considerations 

Foreign entrants should consider at the outset whether the Investment Canada Act applies to their proposed Canadian activities. The Act can require a notification for the establishment of a new Canadian business or for certain acquisitions of control of an existing Canadian business, and larger or sensitive transactions may require pre-closing review and approval. For more details, please read our Foreign investment review.

7. Quebec’s corporate transparency requirements 

The  Act respecting the legal publicity of enterprises (the “LPA”), among other things, sets rules relating to which entities must be registered and the information required to be recorded by enterprises in the Quebec Enterprise Register (the “REQ”). Its objective is to increase the transparency of enterprises operating or registered in Quebec and to optimize the reliability of the information contained in the REQ, in an effort to prevent and combat against tax evasion, money laundering and corruption. 

Bill 78, which came into effect on March 31, 2023, brought significant amendments to the LPA. As part of the new corporate transparency requirements that came into force, enterprises operating in Quebec, including federal, provincial, and foreign enterprises, must respect the obligations set out below. 

a. Ultimate beneficiary disclosure 

The LPA creates an obligation for any person or group of persons registered voluntarily or for any corporations, trusts operating a commercial enterprise, cooperatives, sole proprietorships and/or partnerships required to be registered in Quebec (each, a “Registrant”), including entities constituted under a regime other than that of the laws of Quebec, to disclose information on its ultimate beneficiaries. The following information must be reported in respect of every ultimate beneficiary: 

• The ultimate beneficiary’s name, including any other name(s) they use to identify themselves in Quebec, as applicable; 
• Their date of birth (this information will not be published or publicly available in the REQ); 
• The address of their domicile (this information will not be published, and publicly available, in the REQ if their professional address is reported); 
• The nature of the “significant control” exercised by the ultimate beneficiary or the percentage of shares or units held by or of which each one is a beneficiary; and 
• The date on which each person because an ultimate beneficiary and, when applicable, the date on which each person ceased to be an ultimate beneficiary. 

Reporting issuers, not-for-profit corporations, certain financial institutions pursuant to the Insurers Act, trust corporations, banks and associations within the meaning of the Civil Code of Quebec are exempt from this reporting requirement. 

Who is an ultimate beneficiary?  

An ultimate beneficiary is a natural person or an entity that exercises “control in fact” of the enterprise or that ultimately holds at least 25% of its shares or units, by satisfying one or more of the following conditions: 

1. The person is a holder, even indirectly, or a beneficiary of a number of shares or units of the Registrant, conferring on the person at least 25% of the voting rights or at least 25% of the fair market value of all the shares or units issued by the Registrant; 
2. Two or more persons have agreed to jointly exercise their voting rights so that together they have the capacity to exercise at least 25% of the voting rights; 
3. The person has any direct or indirect influence that, if exercised, would result in control in fact of the Registrant; 
4. The person is the general partner of the Registrant or, if a general partner of the Registrant is not a natural person, the person meets one of the conditions described in items (i) and (iii) or is a party to an agreement referred to in the following paragraph in respect of the general partner; and/or 
5. The person is the trustee of the Registrant, noting that a legal person acting as a trustee is considered to be a natural person. 

Entities that belong to a category of exempted Registrants as described above, as well as a legal person acting as a fiduciary, are considered natural persons for the purpose of determining ultimate beneficiaries. 

How to declare the ultimate beneficiary?  

The ultimate beneficiary information is to be reported by means of an annual updating declaration or a current updating declaration filed directly with the REQ, by the end of the production period of the annual updating declaration. 

Who will have access to this information? 

The information respecting ultimate beneficiaries will be accessible to the public (with the exception of dates of birth, domicile of natural persons if a professional address has been disclosed, and names and domiciles of minors who are ultimate beneficiaries). However, the government may, by regulation, determine any other information contained in the REQ that may not be available for consultation. 

b. Directors’ identification 

Registrants will need to provide the REQ with copies of valid identification, with or without a photo, issued by a governmental authority for each director. 

c. Date of birth 

Registrants will also need to declare to the REQ the dates of birth of the three shareholders holding the most voting rights, the president, the secretary and the chief executive officer who are not members of the board of directors. For partnerships, Registrants will need to declare to the REQ the dates of birth of each partner or, if the partnership is a limited partnership, of each general partner and of the three largest contributors to the partnership among the special partners. 

Penalties for non-compliance 

Existing penalties and administrative measures under the LPA will be applicable for Registrants who fail to comply with the new transparency requirements. Consequently, non-compliance with the new LPA requirements may result in the cancellation of the registration of the offending enterprise as well as in fines ranging from between $500 to $25,000. The same applies in respect of the Registrant’s obligation to provide, for each director, a copy of identification issued by a government authority in support of any declaration concerning the directors. 

Considerations for setting up a Canadian entity 

Whether to form a Canadian entity, and if so which one, is a threshold decision that shapes a foreign entrant’s liability, tax position, governance and compliance obligations. The following considerations help frame that decision: 

• Whether you need a Canadian entity at all. Consider whether your Canadian activities can be conducted through a branch, agents or e-commerce, or whether a separate Canadian entity is warranted to contain liability, contract locally and present a Canadian face to customers and regulators.
• Which vehicle fits your liability and tax goals. Weigh a limited liability corporation against an unlimited liability company (ULC) for cross-border tax planning, or a partnership or limited partnership, taking Canadian and home-country tax consequences into account. 
• Where to incorporate and register. Decide between federal (CBCA) and provincial or territorial incorporation based on where you will operate, and map the extra-provincial registrations, licences and permits your footprint will require. 
• How you will govern and staff the entity. Confirm whether your chosen jurisdiction requires Canadian-resident directors, who will serve on the board, and whether a shareholders’ agreement is needed to align control, minority protections and reporting with any Canadian co-investors or management. 

How Miller Thomson can help  

Choosing the right Canadian business structure is the first decision a foreign company makes, and one that is difficult and expensive to undo once operations have begun. The interplay between corporate law, tax, director residency, Quebec transparency obligations, and Investment Canada Act requirements means that the structuring exercise requires coordinated advice across multiple disciplines simultaneously. Miller Thomson advises foreign companies on the full spectrum of Canadian business organization. Our national presence, including our Montréal practitioners, means we can address the Quebec corporate, transparency, and civil law dimensions alongside the common law framework, because a national Canadian corporate structure requires both.  

Speak with a Miller Thomson corporate lawyer about structuring your Canadian operations.