A photo of Toronto, Ontario by Scott Webb (Pexels License)
1. If you incorporate a company federally, you have to register it provincially as well
When you incorporate a company federally, you will have to do an extra-provincial registration depending on where you are based in.
An extra-provincial registration means that you are registering a "foreign" business entity so that you can operate in the province—yes, you read that right—a federally-incorporated company is technically a "foreign" business entity in the eyes of Canadian provinces.
For example, let's say you incorporated a federal company, and you are operating out of British Columbia (BC). BC technically treats your federal company as "foreign" and as such you have to register the federal company extra-provincially in BC as well if you are operating out of it.
2. You may have to pay twice to register your company federally + extra-provincially
When you incorporate a company federally, you would essentially have to pay twice to register the company properly:
- Once for the federal incorporation, and
- Once more for extra-provincial incorporation depending on where your business operations are based in.
Different provinces or territories will impose different fees—some would cost less than others.
This official webpage from Canada.ca links to the webpages of each provinces and territories that outline the cost of extra-provincial registration.
3. You have to file annual returns twice
Annual returns are not tax returns. To oversimplify it, annual returns are annual declarations of who your company directors are, and whether your company is still operating in the province / in the country.
Annual returns are usually filed... well, annually, and there are fees you have to pay to file it.
They aren't exorbitantly expensive—federal annual returns cost as low as $12, and provincial annual returns can go up to $90+. But if you incorporate federally, you have to file your annual returns twice:
- Once for your federal corporation, and
- Once more for your extra-provincial corporation.
4. You have to register extra-provincially every time you move provinces
When I registered my company federally, it cost $200.
Because I was based in British Columbia, I had to register my company extra-provincially, and it cost me another $350+.
Then, I moved to Alberta, where the extra-provincial registration costs $475+.
That rings the till to a total of over $1,000+ for registering my company federally and in the two provinces.
Had I registered my company provincially in British Columbia, it would've cost about $350+ and that would be it.
And if I were to move to Alberta, Saskatchewan, or Manitoba, I would not need to pay for extra-provincial registration because of NWPTA (New West Trade Partnership Agreement). NWPTA eliminated the need for businesses incorporated in any of these provinces to pay for extra-provincial registration fees. (There may be a similar trade agreement in the eastern provinces.)
In my case, since my company was federally incorporated, it is ineligible for NWPTA.
So long story short, I paid an extra $600+ when I could've only paid $350+. It's not the end of the world, but in retrospect I could've gone with a provincial incorporation instead and it wouldn't make much of a difference really, considering I'm mostly a one-person business.
Considerations of Incorporating Provincially
Generally, if you are running a primarily-online business, a provincially-registered company does not mean you can only have clients or customers within the same province. You can have money coming in from all over the country or even all over the world.
But, depending on the operations of your business, whether you have employees in other provinces and so on, you may have to register extra-provincially. Then again, if you are in a province within the NWPTA agreement, the extra-provincial registration process is simplified and many types of registration costs are eliminated.
Also, there's not much of a difference in terms of taxation either, as you don't generally get to pay less taxes by incorporating either provincially or federally.
Benefits of Incorporating Federally
One of the key benefit of a federal company is name protection, where your company name cannot be registered by another person or another entity anywhere within Canada.
But for small businesses, does the company name really matter that much?
A small business called "ABC Laundry Inc." operating in Alberta probably wouldn't care if another company in New Brunswick has the name of "ABC Best Laundry Inc."
But if the company name is really that valuable, you can trademark a name throughout Canada while being a provincially-incorporated company.
You can also incorporate a company provincially first, and then convert it to a federal corporation later if you really need to. Yes, there are fees associated with it, but if your business has really grown to the point where you need to incorporate federally, then the cost would only be a drop in the bucket. This approach may be more sensible than incorporating federally first and paying all the fees associated with it, even though you don't really need to for the size of the business you are starting off with.
You can visit this official webpage from Canada.ca that explains more on the benefits you can get by incorporating a company federally.