One of the first questions every Canadian founder asks when they decide to incorporate is: should I incorporate federally or provincially? It is a straightforward question, but the answer depends on your specific circumstances — where you plan to operate, who your directors are, how important name protection is to you, and how much administrative overhead you are willing to take on.
In The Law for Founders, I make the point that Canadian founders actually have it simpler than their American counterparts. In the United States, there are 50 states to choose from, and some states — like Delaware and Wyoming — actively market specific benefits to attract incorporations. Delaware is famous for its business-friendly Chancery Court and well-developed corporate case law. Wyoming markets its privacy protections. In Canada, the choice is cleaner: federal or provincial. But even with only two real options, corporate law in Canada leaves lawyers with a lot of room to be creative in how they structure things.
This post breaks down the practical differences so you can make an informed decision.
The Core Difference
A federal incorporation is governed by the Canada Business Corporations Act (CBCA) and is administered by Corporations Canada, a branch of the federal government. A provincial incorporation is governed by the applicable provincial statute — in Ontario, that is the Ontario Business Corporations Act (OBCA), administered by the Ontario government.
Both statutes are broadly similar. They both create the same type of legal entity — a corporation with limited liability, the ability to issue shares, and a governance structure built around directors and officers. The differences are in the details, and those details matter more for some founders than others.
Name Protection
This is one of the biggest practical differences. When you incorporate federally, you receive nationwide name protection. No other federally incorporated company can use the same name or a confusingly similar name anywhere in Canada. This is particularly valuable if your brand is central to your business and you plan to operate across multiple provinces.
Provincial incorporation only protects your name within that province. If you incorporate in Ontario under a particular name, another company could potentially incorporate under the same or a similar name in British Columbia or Alberta. For local businesses that will never operate outside Ontario, this may not matter. For a tech startup with national or international ambitions, it could be a concern.
That said, name protection through incorporation is not the same as trademark protection. Even with federal incorporation, your name is not a registered trademark. If brand protection is a priority, you should consider trademark registration as a separate step — regardless of which jurisdiction you choose for incorporation.
Director Residency Requirements
This is often the deciding factor for startups with international founders or distributed teams. Under the CBCA, at least 25% of the directors of a federal corporation must be resident Canadians. If the corporation has fewer than four directors, at least one must be a resident Canadian.
Ontario has no Canadian residency requirement for directors. None at all. This means a startup founded by two people living outside of Canada can incorporate in Ontario without needing to appoint a Canadian-resident director. For many early-stage companies, especially those with founders in the US or overseas, this is a significant advantage.
In The Law for Founders, I cover director duties in detail. Regardless of jurisdiction, directors owe a fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation, and a duty of care to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. These duties are serious. Directors can be personally liable for unpaid employee wages (up to six months under the CBCA), unpaid corporate taxes, environmental liabilities, and more. The jurisdiction you choose does not change these obligations — but the residency requirement can affect who is eligible to serve as a director.
Extra-Provincial Registration
Here is a wrinkle that catches some founders off guard. If you incorporate federally, you still need to register your corporation extra-provincially in every province where you carry on business. For most startups, that means registering in Ontario (or whichever province you operate in) even though you already have a federal incorporation. This is an additional filing with additional fees.
If you incorporate provincially in Ontario and only operate in Ontario, you do not have this extra step. Your incorporation and your registration happen in one process. However, if you later expand to other provinces, you will need to register extra-provincially in those jurisdictions, just as a federal corporation would.
For a startup that is initially operating in a single province, provincial incorporation avoids this extra administrative step. For a company that is already operating across provinces from day one, federal incorporation may actually simplify things because you get nationwide recognition of your corporate existence.
Government Fees and Filing Costs
The government fees differ between federal and Ontario incorporations, though both are relatively modest compared to the overall cost of getting a company properly set up. Federal incorporation through Corporations Canada has its own fee schedule, and Ontario incorporation has a separate one. In practice, the legal fees for structuring the articles, setting up the share structure, and completing the organizational resolutions tend to be similar regardless of jurisdiction. The government filing fees are a small part of the total cost.
If cost is a significant concern, it is worth noting that a numbered company (where you skip the NUANS name search and just get an assigned number) is cheaper to set up in either jurisdiction. Many startups incorporate as a numbered company initially and register a business name later, which can work well if you have not finalized your branding yet.
If you are weighing the costs and want a clear picture of what the full process involves, book a free consultation and we can walk through the numbers for your specific situation.
Share Structure Considerations
The articles of incorporation — whether federal or provincial — define the share classes, the rights and restrictions attached to each class, and the maximum number of shares the corporation is authorized to issue. In The Law for Founders, I explain that the share structure decisions made at incorporation affect everything from co-founder equity to future fundraising rounds.
Both federal and provincial articles work similarly in this regard. You can create multiple classes of shares with different voting rights, dividend entitlements, and distribution preferences on dissolution. The key is to set up a structure that is flexible enough to accommodate your future plans. If you expect to raise venture capital, for example, you will likely need to create a class of preferred shares for investors — and it is easier to plan for that at the outset than to amend the articles later.
The share structure does not change based on jurisdiction. What changes is the governing statute and the specific rules around things like director approval for share issuances, shareholder approval thresholds, and the mechanics of amending the articles. Both the CBCA and OBCA are well-established frameworks that provide the tools founders need.
Ongoing Compliance
Both federal and provincial corporations have ongoing compliance requirements. These include filing annual returns, maintaining corporate records (the minute book), holding annual meetings of shareholders (or passing annual resolutions in lieu of meetings), and keeping the register of directors current with the government.
Federal corporations file their annual return with Corporations Canada. Ontario corporations file with the Ontario government. The requirements are similar, but the deadlines, forms, and filing methods differ. If you have a federal corporation operating in Ontario, you will generally need to file both a federal annual return and an Ontario annual information return — adding a small amount of extra paperwork compared to a pure Ontario corporation.
The Holding Company Question
Some founders choose to set up a holding company to hold shares of their operating company. In The Law for Founders, I discuss holding companies as functioning somewhat like a private pension plan — a place where owners can accumulate funds during high-earning years, invest them, and draw on them later.
The jurisdiction choice for the holding company may differ from the operating company. A common structure is to have the operating company incorporated federally (for nationwide name protection and credibility) while the holding company is incorporated provincially (for simplicity and lower ongoing compliance costs). Or vice versa. The right structure depends on your specific tax planning goals and business circumstances, and this is an area where coordination between your lawyer and accountant is essential.
The Section 85 Rollover
If you have been operating as a sole proprietor or partnership and are now incorporating, you may be able to transfer your existing business assets into the new corporation on a tax-deferred basis using a Section 85 rollover under the Income Tax Act. This applies regardless of whether you incorporate federally or provincially — it is a tax provision, not a corporate law provision.
The rollover allows you to transfer assets at their tax cost (rather than fair market value), deferring any taxable gain until you eventually dispose of the shares or the corporation disposes of the assets. This can be a significant tax savings, especially if the business has built up value as a sole proprietorship. The Law for Founders covers the mechanics of the rollover in the context of founders transitioning to a corporate structure, and it is something you should discuss with your accountant before incorporating.
Common Myths
There are a few myths I hear regularly that are worth addressing. The first is that federal incorporation is “better” or more prestigious than provincial. It is not. Both create legitimate, fully functional corporations. Investors, banks, and customers do not care whether your corporation is federal or provincial. They care about your business.
The second is that you need federal incorporation to do business outside Ontario. You do not. An Ontario corporation can carry on business anywhere in Canada — it just needs to register extra-provincially in other provinces where it operates. This is a simple administrative step, not a barrier.
The third is that provincial incorporation is somehow less secure or less protective. It is not. The limited liability protection, corporate governance framework, and shareholder rights under the OBCA are robust and well-tested. Ontario has a highly developed body of corporate law and a sophisticated court system.
When to Choose Federal
Federal incorporation tends to make more sense when your brand name is central to your business and you want nationwide name protection from day one. It also makes sense when you plan to operate across multiple provinces immediately, when your investors or partners expect a federal incorporation (this is sometimes the case with larger institutional investors), or when you want to incorporate under the CBCA specifically because of a particular provision or feature of federal corporate law.
Our federal incorporation page has more detail on the process and what to expect.
When to Choose Ontario
Ontario incorporation tends to make more sense when you plan to operate primarily or exclusively in Ontario, when your directors are not all Canadian residents and you cannot meet the 25% residency requirement, when you want a simpler filing and compliance process with only one government to deal with, or when you are bootstrapping and want to minimize administrative overhead and costs.
Our Ontario incorporation page walks through the specific steps and requirements.
The Bottom Line
For most early-stage Ontario startups, the choice between federal and provincial incorporation comes down to two practical questions: Do you need nationwide name protection? And can you meet the 25% Canadian-resident director requirement? If name protection matters and you have Canadian-resident directors, federal is a strong choice. If you want simplicity and have non-resident founders, Ontario is usually the better path.
Either way, the share structure, organizational resolutions, and minute book setup are essentially the same. The jurisdiction is the wrapper — what matters more is what goes inside it. For a comprehensive look at all of this, download a free copy of The Law for Founders, which covers both federal and provincial frameworks in detail.
Not sure which jurisdiction is right for your situation? Book a free consultation and we will help you sort it out.