Do you need a Canadian resident director to incorporate in Canada? For many years, most Canadian corporate statutes required a portion of a corporation's directors to be resident Canadians. That has changed in several provinces, including Ontario, but not federally.
This article explains the director residency requirements in Canada today, who counts as a resident Canadian, how the rules affect where to incorporate, and how a board made up of non-residents can govern a Canadian corporation in practice.
Key Takeaways
- Federal corporations under the CBCA generally need at least 25 percent resident Canadian directors, or at least one if the board has fewer than four directors.
- Ontario removed its resident director requirement in July 2021, so an Ontario corporation can have an entirely non-resident board.
- Several other provinces, including British Columbia, Alberta, and Quebec, also have no residency requirement.
- The rules have changed in several provinces in recent years, so the current statute should always be checked.
- Federal corporations also face a residency rule for transacting business at board meetings.
- A non-resident board still needs proper governance, including documented decisions and an understanding of directors' personal liabilities.
- Appointing a "nominee" resident director to meet the rule carries real legal responsibilities for that person.
Director Residency Requirements in Canada: The Federal Rule
Under the federal Canada Business Corporations Act (CBCA), at least 25 percent of a corporation's directors generally need to be resident Canadians. If the corporation has fewer than four directors, at least one must be a resident Canadian.
There have been calls to review or remove this requirement, but it remains in the CBCA. A foreign business that wants to incorporate federally therefore needs to plan for at least one Canadian resident director.
Residency and Board Meetings
The federal rule also affects how the board operates. Generally, a CBCA board cannot transact business at a meeting unless at least 25 percent of the directors present are resident Canadians, or at least one if fewer than four directors are present.
There are limited exceptions, such as where an absent resident Canadian director approves the business in writing. In practice, the requirement shapes how board meetings are scheduled and how decisions are documented.
Who Counts as a Resident Canadian?
Residency is based on where a person lives and their status in Canada, not on citizenship alone.
In general terms, a resident Canadian includes a Canadian citizen who ordinarily resides in Canada, and a permanent resident who ordinarily resides in Canada. Certain Canadian citizens who live outside Canada may also qualify if they fall within a prescribed class. The exact definition is set out in the statute and regulations, and should be checked for any borderline case.
Provinces Without a Residency Requirement
Many provinces no longer require resident Canadian directors.
Ontario removed its requirement effective July 5, 2021. British Columbia, Alberta, Quebec, Nova Scotia, New Brunswick, and Prince Edward Island also have no residency requirement under their corporate statutes.
A few other provinces have had residency requirements, and some have changed their rules in recent years. If you are considering incorporating outside Ontario, confirm the current requirement in that province before filing.
Our article on directors' residency requirements in Ontario covers the Ontario rules in more detail.
How Residency Affects Where You Incorporate
For many foreign-owned businesses, director residency is the deciding factor between federal and provincial incorporation.
A business without a Canadian resident available to serve as a director will often choose to incorporate in a province with no requirement, such as Ontario. A federal corporation offers Canada-wide name protection, but requires a resident Canadian director.
Our comparison of an Ontario corporation vs federal corporation covers the other differences, and our overview of setting up a subsidiary in Canada explains how residency fits into a foreign business's wider setup.
Governing a Canadian Corporation With Non-Resident Directors
Removing the residency requirement does not remove the need for good governance. When directors are not physically present in Canada, the practical questions are how decisions are made and how they are recorded.
Documenting Board Decisions
Non-resident boards often act by signed written resolution or meet electronically. Either way, decisions should be properly documented and kept in the corporation's minute book.
A well-kept record also helps show that the Canadian corporation is managed as a separate entity, rather than directed informally by its parent.
Directors' Personal Liabilities
Directors can be personally liable for certain corporate obligations, such as some unpaid employee wages and some unremitted payroll and tax amounts, regardless of where they live.
Non-resident directors should understand these liabilities and how the corporation manages them.
Tax Considerations
Where a board makes its decisions can, in some situations, be relevant for tax purposes, particularly for cross-border groups. The location of board meetings and decision-making should be reviewed with tax advisors as part of the setup.
Using a Nominee Resident Director
Some foreign businesses that incorporate federally appoint a Canadian "nominee" director, often a service provider, simply to meet the residency rule.
This is common, but it carries real issues. A nominee director is a full director in law, with the same duties and potential personal liabilities as any other director. They will usually want to be properly informed, involved in decisions, and protected through indemnities and insurance. The arrangement should be documented carefully, and the business should consider whether provincial incorporation without a residency requirement would be simpler.
When to Involve a Lawyer
The best time to involve a lawyer is before you incorporate, so the choice of jurisdiction, the board's composition, and the governance arrangements are planned together.
It is also worth getting advice if you plan to appoint a nominee director, if your board will be entirely outside Canada, or if your corporation's directors or residency status are changing.
The Bottom Line on Director Residency Requirements in Canada
Federal corporations still generally need at least 25 percent resident Canadian directors. Ontario and several other provinces have removed their residency requirements, which makes provincial incorporation attractive for foreign-owned businesses.
Removing the requirement does not remove the need for governance. Non-resident boards still need to document decisions properly, understand directors' personal liabilities, and consider tax implications.
If you are deciding where to incorporate or how to structure your board, our team at Levine Law can help. We can recommend the right jurisdiction and set up governance that works for directors inside or outside Canada.
Frequently Asked Questions
Does a Canadian corporation need a Canadian resident director?
It depends on where it is incorporated. A federal corporation under the CBCA generally needs at least 25 percent resident Canadian directors, or at least one if it has fewer than four directors.
An Ontario corporation has no residency requirement, and several other provinces have none either. Our article on directors' residency requirements in Ontario covers the Ontario rules.
What is the federal director residency requirement?
Under the Canada Business Corporations Act, at least 25 percent of a federal corporation's directors generally need to be resident Canadians, or at least one if the board has fewer than four directors.
A similar residency rule generally applies to the directors present when the board transacts business at a meeting, subject to limited exceptions.
Who counts as a resident Canadian director?
Generally, a Canadian citizen who ordinarily resides in Canada, or a permanent resident who ordinarily resides in Canada. Certain Canadian citizens living abroad may also qualify if they fall within a prescribed class.
Residency is about where a person lives and their status, not citizenship alone. The statute and regulations should be checked for any borderline case.
Which provinces do not require resident Canadian directors?
Ontario, British Columbia, Alberta, Quebec, Nova Scotia, New Brunswick, and Prince Edward Island have no residency requirement in their corporate statutes. Ontario removed its requirement in July 2021.
A few other provinces have had requirements, and the rules have changed in recent years, so check the current statute before incorporating outside these provinces.
Can a foreign-owned company use a nominee resident director?
Yes, and it is common for federal corporations. However, a nominee director is a full director in law, with the same duties and potential personal liabilities as any other director.
The arrangement should be properly documented, with indemnities and insurance in place.
Many foreign businesses find it simpler to incorporate in a province with no residency requirement, as explained in our comparison of an Ontario corporation vs federal corporation.