Canada is known for its welcoming business environment globally. According to the World Bank’s Ease of Doing Business index, Canada ranks 23rd out of 197 countries. The country is well-connected with access to three oceans, spans six time zones, and has more than 550 ports and 18 airports.

Over the years, the country has introduced significant improvements to its intellectual property (IP) regime that would ease administrative burden and simplify processes for Canadian businesses. This further makes it inviting for companies to operate from Canada. 

This article covers how to incorporate a company in Canada, types of business structures in Canada, steps to form a company in Canada as well as tax structure for company registration in Canada.

Types of Business Structures in Canada

In Canada, you have the choice of several business structure types, each with its own pros and cons. These are the major ones:

1. Sole Proprietorship

In Canada, a sole proprietorship is the simplest and most common type of business. It is possessed by one person who runs it on his or her own whim.

The proprietor becomes personally liable for all debts and obligations which means there is a risk of his or her assets being at stake in case the company faces any debt or legal liability.

2. Partnership

It is a form of business where two or more persons or entities collaborate in running the enterprise. There are basically two major types of partnerships:

• When it comes to a general partnership, there can be shared liability among all participants regarding the debts and obligations of the company. This implies that every partner is equally liable for all financial problems.
• In a limited partnership, there are two types of partners: general partners, who have full responsibility for the business’s debts, and limited partners, who are only responsible for their own investment in the business.

This structure allows for joint decision-making and pooling of resources. However, it also means that both financial and legal matters are shared liabilities for such businesses.

3. Corporation

The corporation is separate from its owners, which are also called shareholders. This means that the shareholders cannot be held liable for the company’s debts.

This structure has more complexity and higher costs associated with its formation and operations compared to sole proprietorship and partnership.

It has several advantages including ease of capital raising, perpetual existence as well as possible tax benefits thereby making it suitable for large businesses and those wishing to raise substantial capital.

4. Co-operative

A co-operative is a business owned and controlled by an association of members who use its services or products. 

It operates for the benefit of its members, who share in the profits and decision-making processes. This structure promotes democratic control, with each member typically having one vote, regardless of their investment size. 

Co-operatives are often used in sectors like agriculture, retail, and housing, where collaboration and mutual support are key.

Steps to Form a Company in Canada

Let’s see the steps now to register a company:

1. Decide on the Jurisdiction

When registering a business in Canada, one of the first decisions is whether to register it provincially or federally.

If you choose to register at the provincial level, your business will only be allowed to operate in that specific province. On the other hand, registering federally means your business can operate under the same name across all provinces and territories.

2. Choose a Business Name

Next, you will need to pick a name for your company in Canada. Make sure it’s not the same as or too similar to any existing business names, and that it’s legal.

Once you have picked a name, you’ll need to check if it’s available through NUANS or Canada’s corporate registry. If it’s available, you can then register and reserve it.

3. Prepare Incorporation Documents

Preparing incorporation documents is another step in registering your company in Canada. This involves drafting the articles of incorporation, which outline the structure and purpose of your business. 

Additionally, you may need to prepare other necessary documents, such as bylaws and shareholder agreements. These documents provide a legal framework for your company and ensure compliance with regulatory requirements.

4. Establish a Registered Office

Every business must have a registered office. However, when setting up a company in Canada, you can also have a virtual office for your registered address. This is especially useful for foreign businesses or individuals who want to start a company in Canada without a physical office. Virtual offices offer a business address, mail handling, and other important services, making them a cost-effective and flexible option.

Ordinarily, Canadian law requires that at least 25% of your company’s directors be Canadian residents. If your company has fewer than 4 directors, at least 1 must be a Canadian resident. This means foreign nationals can be directors of a Canadian company via physical or virtual office as long as there’s at least 1 Canadian resident on the board if you have fewer than four directors. However, some provinces permit 100% foreign ownership and foreign directors accordingly as well as subject to certain conditions e.g. Ontario.

Also, each company needs to have at least one director. Without a director, the company can be dissolved under subsection 212(1) of the Canada Business Corporations Act (CBCA).

5. Obtain a Business Number

The next step in setting up a company in Canada is to get a business number. This involves getting a federal business number and a corporation income tax account from the Canada Revenue Agency (CRA). 

The business number is a unique identifier for your company and is used for various tax-related purposes, ensuring that your business complies with federal tax regulations.

6. Complete the Registration Process

To complete the registration process, you need to file the incorporation documents with the appropriate government authority. This involves submitting the articles of incorporation, along with any other required forms and fees, to either the federal or provincial registry, depending on your chosen jurisdiction. 

Once the documents are reviewed and approved, you will receive a certificate of incorporation, officially recognizing your company as a legal entity in Canada.

7. Register for GST/HST

If your company is expected to have annual revenues exceeding a certain threshold (currently CAD 30,000), you must register for the Goods and Services Tax (GST) or Harmonized Sales Tax (HST). This involves obtaining a GST/HST number from the Canada Revenue Agency (CRA) and charging the appropriate tax on your sales. 

You will also need to file regular GST/HST returns and remit the collected taxes to the CRA. This registration ensures compliance with Canadian tax laws and allows you to claim input tax credits on business expenses.

Tax Structure for Company Registration in Canada

To run a business in Canada, companies also need to register with the tax authorities and are obligated to pay the following taxes:

• Corporate Income Tax (CIT): Canadian corporations must pay CIT on their global income at the federal and state levels. CIT applies to capital gains from selling Canadian assets and income from operating a business in Canada. The federal corporate income tax (CIT) rate is 15% after general tax reduction, which can be reduced to 9% for Canadian-controlled private corporations (CCPCs) claiming the small business deduction. Provincial and territorial rates vary, with higher rates generally applying to income not eligible for the small business deduction.
• Federal GST: A 5% Goods and Services Tax (GST) is added to most goods and services in Canada.
• Harmonized Sales Tax (HST): In some regions, Harmonized Sales tax (HST) is a combination of the 5% GST with an additional Provincial Sales tax (PST). This unified tax system is used in several areas to simplify the sales tax process.

Are There Any Favorable States/Provinces to Form a Company in Canada?

Canada offers several favorable provinces for forming a company, each with its own unique advantages. 

• Ontario: As the most populous province and the heart of Canada’s economy, Ontario provides access to a large and diverse market, a skilled workforce, and various programs to support businesses.
• British Columbia: Located on the west coast, British Columbia is a gateway to Pacific markets. It has a strong tech sector and is growing in clean energy.
• Alberta: Known for its rich natural resources, Alberta is a key area for the energy industry. It has low tax rates and a business-friendly environment.
• Quebec: Quebec is recognized for its aerospace, tech, and life sciences sectors. It operates under a civil law system, which can be advantageous for some businesses.

Best Conclusion

Canada is a top spot for starting a business, ranking 6th globally and 2nd among G20 countries according to the World Bank. The country has a strong economy and great infrastructure, which make it a good place for new businesses.  For further queries on business setup in Canada, feel free to reach our experts.

For accounting and bookkeeping services or payroll accounting services in the US, you can opt for GJM & Co. Our team of taxation accountants & CPA accountants can help you with a diverse range of services including payroll management, Business Formation, Taxation, Virtual CFO, and more. You can email us at info@gjmco.com or schedule a call.