Canada subsidiary establishment is a complicated process that varies depending on the form of entity you choose. Each province has critical legal distinctions, which are unique from the federal laws, and you need to stay well-versed on all of them to avoid fines or longer wait times to establish your company.
How to establish a Canada subsidiary
You can choose from 2 options for setting up a Canada subsidiary — establish a presence as a corporation or a partnership. Here are the differences.
- Corporations: Your business is considered a legal entity separate from shareholders, and shareholders are not personally liable for any debt, acts, or other obligations. There are two general forms of corporations in Canada:
- Federal: Incorporation is at a federal level. With the appropriate licenses and provincial registrations, you can do business anywhere in Canada without restrictions regarding the province or territory where the head office is located.
- Provincial/Territorial: Incorporation is only at the provincial level, and each province has its own requirements. To operate in other provinces or territories, you will need to register as an extra-provincial or extra-territorial corporation in those jurisdictions.
- Partnerships: The 2 forms of partnerships include general or limited. Your business can also later get incorporated into a limited liability partnership in some instances. One of the main risks of a partnership is that each partner is jointly liable with the other partners for all debts and obligations of the partnership.
Canada subsidiary laws
Canada subsidiary laws vary based on the province you’re working in. If you want your subsidiary to operate under certain conditions, you should find a region that has a business climate conducive to your business. For example, Ontario, Alberta, Manitoba, Saskatchewan, Newfoundland, and Labrador require that at least 25% of the subsidiary’s directors be residents of Canada. Consider exactly where you will conduct business in Canada as provinces and territories have different operational and licensing requirements. For example, Ontario, Alberta, Manitoba, Saskatchewan, Newfoundland, and Labrador require that at least 25% of the subsidiary’s directors be residents of Canada.
You will need to register in every province in which you plan to do business, if you are incorporated under the country’s federal laws.
Depending on the province/territory in which you decide to incorporate, annual reports or registration renewals have to be filed to the competent authorities.
When setting up your subsidiary, it’s also helpful to review certain business factors such as any existing trade agreements and the nationality of your headquarters. Although English and French are Canada’s national language, individuals in different provinces speak a variety of indigenous languages and dialects.
Benefits of establishing a Canada subsidiary
Although subsidiary laws in Canada can often be confusing for businesses new to the country, you’ll find numerous benefits through setting up a Canada subsidiary. The biggest is that you can continue to grow your company while minimizing liability.
Subsidiaries typically operate under a parent company that has control over all subsidiaries and branches. The Canada-based subsidiary will still operate as part of the parent’s family of companies but may benefit from some protections from the liabilities of the parent of affiliate company
While parent companies shoulder liability, subsidiaries can still retain some independence. You choose how you want your Canada subsidiary to operate, which could be the same or different than the parent. You can take the country’s laws and culture into account and can even tailor operations to fit the specific province where your business is located.
Other important considerations
Substantial costs and resources are required to complete the Canada subsidiary setup process. First, you’ll register your business name and file articles of incorporation. Depending on the province/territory, you might need to obtain mandatory registrations separately since the process is not harmonized throughout the country. You’ll also need to find and register a physical office space and open a corporate bank account in Canada.
Periodic tax and corporate filings may require additional assistance from local counsels and accountants to keep your subsidiary operating in compliance with local legislation.
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