There are many benefits to incorporating at the federal level. Additionally, there are several federal business structures to choose from, including a:
business corporation under the Canada Business Corporations Act (CBCA)
not-for-profit corporation under the Canada Not-for-profit Corporations Act (NFP Act).
Benefits of incorporating
The internal structures of a business corporation and not-for-profit corporation are different, but there are similar benefits to incorporating, such as:
separate legal entity
possible tax benefits
better access to financing
Separate legal entity
The act of incorporating creates a legal entity separate from its shareholders or its members. Under Canadian law, business and not-for-profit corporations have the same rights and obligations as a natural person. Among other things, they can possess and acquire assets, obtain loans, enter into contracts and sue.
Incorporation limits the liability of a business corporation’s shareholders and of a not-for-profit corporation's members. As a general rule, shareholders and members are not personally responsible for their corporation's debts.
If the corporation goes bankrupt, shareholders will not lose more than their investment and members will not lose more than their membership dues (unless the shareholder or member has provided personal guarantees for the corporation’s debts).
Possible tax benefits
Business corporations are taxed separately from their shareholders. The corporate tax rate is generally lower than the individual tax rate. In some cases, incorporation offers some fiscal benefits.
For income tax purposes, not-for-profit corporations may be considered “registered charities” or “non-profit organizations” (see What is the difference between a registered charity and a non-profit organization?). A not-for-profit corporation may therefore be exempt from paying income taxes under the Income Tax Act.
Better access to financing
Business corporations are often able to borrow capital at lower rates than those paid by other types of businesses; financial institutions and other sources of financing tend to perceive such loans as lower-risk investments.
Not-for-profit corporations also have better access to funding. For instance, not-for-profits often need to be incorporated to obtain a government subsidy (see Start and grow a social enterprise).
Contrary to partnerships or sole proprietorships, a business corporation or not-for-profit corporation continues to exist upon the death or departure of its owners or members.
Benefits of incorporating at the federal level
Once federally incorporated, business and not-for-profit corporations also benefit from:
use of a name across Canada
registered office location anywhere in Canada
recognition as a Canadian entity.
Use of a name across Canada
Incorporating at the federal level means that a corporation can operate under the same name across Canada. This flexibility can be very useful, especially if the corporation decides to have operations in different provinces or territories.
Registered office location anywhere in Canada
A corporation's registered office can be located anywhere in Canada. Canadian entities incorporated under other laws may not benefit from this latitude. Business corporations and not-for-profit corporations also enjoy flexibility with regard to the location of their annual meetings. They can even be held electronically or outside the country.
Recognition as a Canadian entity
Business corporations incorporated under the CBCA and not-for-profit corporations incorporated under the NFP Act benefit from international recognition as Canadian entities. This is an important consideration if the corporation has clients abroad or is considering operating there.