Incorporate under Quebec or Canadian law?

Practical advice for choosing a company name
May 15, 2019
Canadian incorporation: make sure you pay for your shares
August 11, 2020

When the time comes to incorporate a business, it is necessary to decide under which law the company will be incorporated: the Quebec law (Business Corporations Act, hereinafter referred to as the "QBCA"), or the federal law (Canada Business Corporations Act, hereinafter referred to as the "CBCA"). Although the two incorporation acts are generally very similar, they each have their own particularities.

Locations of the activities and the company's registered office

It's easy to assume that the federal system allows you to operate a business outside Quebec, and that a Quebec corporation limits activities to Quebec only. In fact, it is quite possible, through a company incorporated under Quebec law, to operate a business outside Quebec. From an administrative point of view, however, it will be necessary to ensure that registration is completed in the provinces where the company has an establishment or carries on business. However, the QBCA places certain limits on the head office. Unlike the CBCA, where the head office can be located anywhere in Canada, the head office must always remain in Quebec.

Company name

Second, the Quebec and Canadian laws have certain differences with respect to the name of the corporation. First, under Quebec law, it is mandatory that the name be in French (at least a French generic), which does not prevent the declaration of an English version of the name of the corporation, which must be an exact translation of the French name. The obligation to have a French name does not exist under Canadian law. However, when registering the business with the Enterprise Registrar, a French business name must still be declared in order for the registration to be accepted.

directors of the company

Regarding directors, it is important to know that in the case of a corporation incorporated under Canadian law, the board of directors must be composed of at least 25% Canadian residents. This restriction does not exist under Quebec law, which means that the entire board of directors may be composed of persons residing outside Canada.

The issuance of the company's shares

Under provincial law, it is possible to issue shares that are not fully paid up (paid up). This is not possible under Canadian law, which provides that shares may not be issued that have not been fully paid up. In order to overcome this limitation, it is possible, where a person wishes to subscribe for shares by making several instalments, to issue a certain number of shares with each payment received.

Registrar of Companies

As for the enterprise registrar, it is still mandatory for companies incorporated under the CBCA to register there, as well as to make the annual update not only at the federal level, but also at the provincial level. There is therefore a certain amount of administrative duplication, which does not exist for corporations under Quebec law.

Which law to choose?

There are a variety of other differences, such as the rules for having a quorum at meetings, amendments to the articles of association, or the possibility of issuing shares with par value.

In the end, is one option better than the other? That depends entirely on the situation and needs of the business and the people who form it. For example, some will prefer the QBCA for the administrative simplicity it provides, while others may be attracted to the Canadian law if they plan to operate across Canada.




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