Should a new business incorporate provincially in Ontario or federally? In Canada, both the federal and provincial governments can incorporate business corporations, so founders in Ontario can choose either route.
This article compares an Ontario corporation vs federal corporation on the points that matter most in practice: where the business will operate, director residency, governance, name protection, ongoing filings, and cost. It ends with a practical way to decide.
Key Takeaways
- An Ontario corporation is governed by the OBCA. A federal corporation is governed by the CBCA. The two statutes are closely related.
- A federal corporation has the right to carry on business across Canada, but generally still has to register in each province where it operates, including Ontario.
- An Ontario corporation must register in any other province where it carries on business.
- A federal corporation generally needs at least 25 percent resident Canadian directors. An Ontario corporation has no residency requirement.
- Federal incorporation offers Canada-wide name protection, with the name reviewed by Corporations Canada.
- A federal corporation operating in Ontario usually ends up with filing obligations in both jurisdictions.
- For a business operating mainly in Ontario, an Ontario corporation is often the simpler choice.
Ontario Corporation vs Federal Corporation: How the Two Systems Compare
A federal corporation is governed by the Canada Business Corporations Act (CBCA). An Ontario corporation is governed by Ontario's Business Corporations Act (OBCA).
The two statutes are closely related, and the basic features of a corporation are the same under both: separate legal personality, limited liability for shareholders, and the roles of shareholders, directors, and officers. Our article on what a corporation is explains these basics.
Because the statutes are so similar, the practical differences are relatively narrow. A handful of points still make a real difference to which route suits a particular business.
Where the Business Will Operate
The first question is whether the business will operate only in Ontario, or in other provinces as well.
Federal Corporations Operating Across Canada
A federal corporation has the right to carry on business throughout Canada. That does not mean it can skip provincial registration. A federal corporation generally still needs to register in each province where it carries on business, and file that province's required returns.
For a federal corporation operating in Ontario, that means Ontario filings in addition to its federal ones.
Ontario Corporations Operating Outside Ontario
An Ontario corporation can carry on business in other provinces, but it must register in each province where it does so. The process varies by province, but for most businesses it is an administrative step rather than a barrier.
The same applies in reverse. A corporation from another province that carries on business in Ontario generally needs to make filings in Ontario, and a corporation from outside Canada generally needs a licence to carry on business here.
In practice, the operating-area difference is smaller than it first appears, because both federal and Ontario corporations end up registering in the provinces where they actually operate.
Director Residency Requirements
Director residency is one of the clearest differences, and it often decides the question for founders with directors outside Canada.
Under the CBCA, at least 25 percent of a federal corporation's directors generally need to be resident Canadians, or at least one director if the board has fewer than four. Ontario removed its resident director requirement in 2021, so an Ontario corporation can have a board made up entirely of non-residents.
Our article on directors' residency requirements in Ontario covers this in more detail. For foreign-owned businesses, our overview of setting up a subsidiary in Canada explains how residency affects the choice of jurisdiction.
Shareholder Meetings and Governance
Both statutes require annual shareholder meetings, although shareholders of a private corporation can often act by signed written resolution instead.
The statutes differ somewhat in how they treat virtual meetings. Ontario corporations generally have more flexibility to hold shareholder meetings entirely by electronic means, subject to their articles and by-laws. Under the CBCA, a meeting held entirely by electronic means generally needs to be permitted by the corporation's by-laws.
In practice, this difference can usually be managed by drafting the by-laws appropriately at incorporation.
Name Availability and Protection
A federal corporation's name is protected across Canada. Corporations Canada reviews proposed names before approving them, which can add time to the process.
An Ontario corporation's name protection is tied to Ontario. Ontario does not review names for similarity in the same way, so more of the responsibility for choosing a name that will not conflict with existing names rests with the incorporator.
In both jurisdictions, a named corporation generally needs a NUANS name search report, while a numbered company does not. Our article on naming a new corporation in Ontario explains how the name rules and search work.
Ongoing Filings and Compliance
Both types of corporation have ongoing obligations, including keeping a minute book, a securities register, and a register of individuals with significant control, and filing annual returns.
A federal corporation files its annual return with Corporations Canada and also files information about individuals with significant control there. If it carries on business in Ontario, it generally has Ontario filing obligations as well. An Ontario corporation files through the Ontario Business Registry.
For a business that only operates in Ontario, incorporating in Ontario usually means fewer separate filings to track. Our overview of ongoing compliance for a Canadian subsidiary explains these obligations in more detail.
Cost and Timing
Government filing fees differ between the two jurisdictions and change from time to time, so check the current fees with Corporations Canada and the Ontario Business Registry before filing.
Fees are rarely the deciding factor. A federal named corporation can take longer because of the name review, and a federal corporation operating in Ontario will also have Ontario registration and filing costs. A numbered corporation in either jurisdiction avoids the NUANS report, which saves time and cost.
Ontario Corporation vs Federal Corporation: Which Should You Choose?
There is no single right answer, but a few patterns hold for most businesses.
An Ontario corporation is often the simpler choice for a business operating mainly in Ontario, especially where some directors live outside Canada, or where the founders want fewer separate filings.
A federal corporation can make sense for a business planning to operate across several provinces from the outset, or where Canada-wide name protection is important to the brand.
Future plans matter too. A business expecting to expand nationally, raise investment, or add foreign directors should factor that into the choice now, since changing jurisdiction later requires a formal continuance.
When to Involve a Lawyer
The best time to involve a lawyer is before you file, so the jurisdiction, name, share structure, and by-laws are chosen together.
It is also worth getting advice if you have directors outside Canada, plan to operate in several provinces, or are setting up a Canadian subsidiary of a foreign business.
The Bottom Line on Ontario Corporation vs Federal Corporation
The OBCA and CBCA are closely related, so the choice between an Ontario corporation and a federal corporation comes down to a few practical points: where the business will operate, where the directors live, how important Canada-wide name protection is, and how many filings you want to manage.
A federal corporation offers national name protection and a right to operate across Canada, but generally still registers in each province and requires resident Canadian directors. An Ontario corporation is often simpler for a business based in Ontario.
If you are deciding where to incorporate, our team at Levine Law can help. We can compare both options against your plans and handle the incorporation and organizational steps for you.
Frequently Asked Questions
What is the main difference between an Ontario corporation and a federal corporation?
An Ontario corporation is governed by the OBCA, and a federal corporation by the CBCA. The statutes are closely related, so the main practical differences are director residency, name protection, and filings.
A federal corporation has Canada-wide name protection but generally needs 25 percent resident Canadian directors, while an Ontario corporation has no residency requirement.
Does a federal corporation need to register in Ontario?
Generally, yes. A federal corporation has the right to carry on business across Canada, but it still needs to register in each province where it carries on business, including Ontario, and file that province's required returns.
As a result, a federal corporation operating in Ontario usually has filing obligations both federally and in Ontario.
Does a federal corporation need Canadian resident directors?
Generally, yes. Under the Canada Business Corporations Act, at least 25 percent of directors generally need to be resident Canadians, or at least one if the board has fewer than four directors.
An Ontario corporation has no resident director requirement, which is why many foreign-owned businesses choose Ontario incorporation.
Does federal incorporation protect a business name better?
Yes. A federal corporation's name is protected across Canada and is reviewed by Corporations Canada before approval. An Ontario corporation's name protection is tied to Ontario.
Neither gives trademark rights, which require a separate registration. Our article on naming a new corporation in Ontario explains the name rules and the NUANS search.
Which is better for a business operating only in Ontario?
Usually an Ontario corporation. It avoids the federal resident director requirement and the need to file both federally and in Ontario, which keeps ongoing compliance simpler.
A federal corporation may still make sense if Canada-wide name protection is important, or if the business expects to expand into other provinces soon. It is worth discussing future plans before filing.