Setting up a business in Canada

By Bruce Marks

Canada enjoys the benefit of being a bilingual (English and French) nation, and having two distinct legal heritages. In Quebec the Civil Code governs civil matters and the rest of Canada follows the Common Law. Canada is one of the most advanced countries in the world with respect to its legal and commercial infrastructure.

TYPES OF BUSINESS ENTITIES

Canadian law recognizes several different business entities each of which has its own merits depending on the use for which it is intended. In order to set up a business in Canada, one may employ any of these vehicles. If one was intending to establish a Canadian office of a pre-existing business from outside of Canada a branch or subsidiary of that enterprise is possible.

Sole Proprietorships

A sole proprietorship is the simplest for of business enterprise in Canada. The business is directly owned by one person who is responsible for the business, including all liabilities. Unless the sole proprietorship operates under a name other than the name of the individual who owns it there is no registration of that business. If however a business name is going to be used other than the name of the owner, registration is required in each province where the business operates. 

Partnerships

Partnerships are businesses operated by two or more individuals or corporations together pursuant to an agreement between them. Partnerships must be registered. There are three types of partnership, general partnership, limited partnership and limited liability partnership.

General partnerships provide no protection from liability for the partners against debts, losses or torts.

Limited partnerships comprise of one general partner and limited partners. General partners are liable for all debts, losses or torts and are responsible for the management of the business. Frequently, if not always, the general partner is a corporation. Limited partners are protected from liability but are not allowed to participate in the management of the business. Profits are dispersed pursuant to an agreement between the partners. 

Limited liability partnerships are used for professional business. The limited liability partnership protects each individual partner from the liabilities of another partner and that other partner's employees that are under their exclusive supervision or control.

Canadian Corporations

In Canada, a corporation is in law a person with independent legal status. A corporation is owned by its shareholders. Because of the legal status of the corporation however, the shareholders are not responsible for the liabilities of the corporation. Corporations must be incorporated pursuant to the applicable statute in its jurisdiction, either provincial or federally. 

Branches of Foreign Corporations

In order to conduct business in Canada a foreign business can operate as a branch operation. The branch must be registered in Canada.

Unlimited Liability Company

In Nova Scotia a "hybrid" exists called an Unlimited Liability Company. This vehicle is frequently employed by foreign businesses to operate in Canada because of the flow through nature of any losses incurred by the Unlimited Liability Company which may be used by the foreign business.

Joint Ventures

Joint ventures are simply associations of two or more businesses with a view to undertaking a specific enterprise or goal. This association can be achieved by way of partnership or separate incorporation of the joint venture. Joint venturers can be any combination of individuals and corporations.

Franchises

A franchise is a business form wherein the franchisor allows the franchisee to sell its products and/or services using the franchisor's business name, logo etc. by way of license. The franchisee is charged a fee and royalties for the use of the business name etc.

FOREIGN INVESTMENT IN CANADA

Foreign investment in Canada is regulated. Investment in cultural industries, banking and insurance, broadcasting, telecommunications, transportation and certain other industries is limited. Foreign investment in Canada is also regulated by size. The Investment Canada Act provides that where the investor is not from a WTO nation investments are $5 MM and one half of the aggregate of the entire entire transaction or where the investment is above 50 MM, these investments are reviewable. If the investor is from a WTO country the thresholds are much higher.

INTELLECTUAL PROPERTY

Canada is a member of the Paris Convention for the Protection of Industrial Property. Canada provides protection of Patents, Trade-marks, Copyright, Industrial Design and others.

TAXATION

Canada taxes it's residents on their worldwide income. Non residents are subject to withholding tax. Tax is imposed on both the Federal and Provincial level.

IMPORTING GOODS

Canada imposes a Customs Tariff on all goods entering Canada. Duties are paid by the importer upon receipt. Customs duties are subject to the Customs Tariff depending on the nature of the goods and the origin of the goods. Canada has entered into a Free Trade agreement with the United States, Mexico Chile and Israel. There are no duties on goods being imported from the U.S. and duties are being phased out on goods from Mexico, Chile and Israel.

Warning: this Article is of general reference only. Any corporation or individual seeking to establish a business in Canada should seek legal counsel prior to doing so.


Mr. Marks is a commercial lawyer with Marks & Marks LLP, a full service law firm with offices in Ottawa, Canada. If you would like to reach Mr. Marks you may telephone at 343-883-7087 or email him at bruce.marks@marks-lawyers.com