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Doing Business in Canada
 
 
 

Forms of Business Organisation

Most foreign companies choose to set up a Canadian subsidiary, rather than a branch, to conduct business in Canada. Doing so limits the liability of the foreign parent to the amount of capital it contributes to the subsidiary. A branch that initially incurs losses might provide a tax benefit to the foreign parent, but that parent’s liability is not limited for debts and other obligations undertaken by its Canadian offshoot. Moreover, a subsidiary structure is more convenient for management and accounting purposes, and it may be necessary when applying for various forms of federal government assistance.

Requirements of a Federally Incorporated Limited Liability Company (LLC)

Capital

No minimum. Subscription may be in cash, property or recognition of a shareholder’s past services. Non-cash equity must be a fair equivalent determined by directors. No legal reserves are required for non-financial corporations.

Founders & Shareholders

Minimum of one founder. No nationality or residence requirements. Shareholder meetings must be held in Canada unless voting shareholders agree otherwise.

Board of Directors

Under recent amendments to the Canada Business Corporations Act, only one-quarter of a board’s members must be Canadian residents (formerly a majority was required) unless there are fewer than four directors, in which case one must be a resident Canadian.

Residency rules vary for provincial incorporation. In Ontario and Alberta, at least half the directors must be Canadians, and British Columbia requires a majority of Canadian representation, with at least one member from the province. Permanent residents of Canada who are not citizens may qualify as Canadian directors. Some provinces, including Quebec, New Brunswick and Nova Scotia, do not have residency requirements for directors.

Directors are not required to own shares in a corporation. Under the federal act, at least one-quarter of the directors at a board meeting must be Canadian. Board meetings may be conducted by telephone. Companies are not required to have a representative of labour on the board.


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