Federal or Provincial Incorporation?

If you have decided to incorporate a new company, one of the first decisions you will have to make is whether you will incorporate under British Columbia or federal legislation. British Columbia companies are governed by the British Columbia Business Corporations Act (“BC Act”) and federal companies under the Canada Business Corporations Act (“CBCA”). There are a number of differences between the two Acts, which might be inconsequential or very important, depending on the nature of your business or how you wish to structure and operate your company, but there are a few key considerations that most incorporators should consider before incorporation.

If you plan to carry on business outside of British Columbia, the CBCA may be more desirable. Companies under both acts have the capacity to carry on business throughout Canada, but only federally incorporated companies have that ability as a right (under s. 15(2) of the CBCA). Federal companies must still generally register with the provinces they wish to operate in, but they have the right to operate across the country under the name they were incorporated under, even if there are already companies with similar names operating in those provinces. A BC company, by contrast, will have to apply to register in other provinces, and their company name is only protected within British Columbia. This means that if a company with a similar name is already in operation in another province, you may not be able to operate under your name in that jurisdiction.

Another consideration is the residency requirements of directors. Under the CBCA s.105(3), a minimum of 25% of the directors must be Canadian residents. Companies incorporated under the BC Act, however, no not have to comply with such a requirement and indeed none of the directors need to be Canadian residents.

The two acts also have some differences regarding shares. The CBCA prohibits the creation of par value shares, while the BC Act does not. As well, federal companies are required to create separate stated capital accounts for each class or series of shares that it issues and it must add to the appropriate account the amount of all consideration received for such shares. By contrast, BC companies need not keep separate capital accounts (although there are rules in the BC Act providing for how capital received for non par value shares is to be added to the capital of the company). Also of note is the fact that federal companies may not own shares in their parent company, and by extension, none of its subsidiaries may hold shares in it. The BC Act does not have a similar prohibitions, however if a BC company does hold shares in its parent company it may not vote those shares of be counted in quorum at a meeting of the parent company.

These are but a few of the many differences between the two acts and not included here are the many similarities between them. Before you incorporate it would be wise to inquire about the aspects of the two acts that are different and that are of particular importance to your business.

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