For many American or foreign businesses, the idea of setting up operations in Canada often evokes one of two very different reactions.  Often, Canada is viewed by Americans as the fifty-first state (albeit a large and cold one); while others view their northern neighbour as very much a foreign country with foreign laws.  The truth lies somewhere in between.  While Canada and the United States share many of the same legal concepts, there are also some significant differences in many areas of the law.  All American and foreign businesses need to address these differences before making some fundamental decisions as to how and under what type of entity they wish to conduct operations in Canada.

In this and future posts to this blog, my colleagues and I will address the important decisions that companies must consider and plan for when they establish their business in Canada. These considerations also apply to companies who are already doing business in Canada.  They may want to consider making changes if it makes sense for their business and works from a tax perspective. Let’s begin today’s post with what I believe are the most important first steps in establishing a Canadian business: selecting your businesses entity and obtaining special licenses and registrations where necessary.

Carefully Select An Entity For Your Business

There are a number of different entities through which one can operate a business in Canada.  The two most commonly used are an unincorporated entity (for example, a sole proprietorship or various forms of partnership) and a corporation (either of the limited liability or unlimited liability type).  Canadian corporations are distinct entities created by law, but essentially have all the powers of a natural person, that is they can do anything an individual can, subject to any applicable legal requirements.

Depending on the nature of the business, but subject to a careful tax analysis on both sides of the border, most organizations coming to Canada would, purely from a liability perspective, normally prefer operating as a corporation with limited liability. Being a corporation with limited liability means that any and all liabilities of that corporation are limited solely to that entity and do not become the debts or obligations of another person, including the corporation’s directors, officers or shareholders.  There are some exceptions to this limited liability rule, such as where an individual or another entity signs a document guaranteeing some or all of the corporation’s debts or where any person fails to clearly evidence that they are acting on behalf of the corporation and not in their personal capacity.  There are also a number (and an ever-growing list) of Canadian federal and provincial statutes which impose liability upon a corporation’s directors and, to a lesser extent, officers, with respect to certain taxes and other obligations of the corporation for which they act.  This topic will form the basis of later posts to our blog.

Unlike a limited liability corporation, the concept of limited liability does not exist for unlimited liability corporation (“ULCs”). As its name suggests, when an ULC is used to operate a business the shareholder(s) of the ULC are fully liable for all the debts and obligations of the ULC. There are, however, certain tax flow-through advantages when using a ULC, which will be discussed in an upcoming blog.

Secure Businesses Licenses and Registrations

Another major area to be considered is whether the business to be undertaken in Canada will require any form of special licensing.  As might be expected, a number of industries and sectors are regulated by various levels of government.  These include, to name but a few, banking, telecommunications, businesses dealing with or affecting the environment, gaming, and other industries.  A business operating in Canada will also need to meet a number of tax, worker’s compensation and other registration requirements of various governmental agencies and taxing authorities.  Daunting as some of this may sound, most if not all of these issues can be efficiently dealt with by using experienced counsel.

In our next post, we will take a more in-depth look at the various ways in which operations can be conducted in Canada, including the choice between operating as a branch of an existing U.S. or foreign entity or establishing a Canadian subsidiary. In the meantime, what legal and business questions come to mind when you think about establishing a foreign business in Canada? I welcome your feedback and questions on this topic. Please post your comments on our LinkedIn page at: Dickinson Wright Canada, on Twitter at: @DWrightCanada or on my personal LinkedIn page at:

About the Author:

Elliot Y. Rand is a corporate lawyer in the Toronto office. He can be reached at 416.367.0875 or and his biography is available here.