CANADA Law and Practice Contributed by: Marc-André Godard, Pierre Allard, Isabelle Gagnon and Mehrez Houacine, BCF Business Law LLP
BCF Business Law LLP 1100 René-Lévesque Blvd. West 25th Floor Montréal Quebec H3B 5C9 Canada
Tel: +514-397-8500 Fax: +514-397-8515 Email: info.bcf@bcf.ca Web: www.bcf.ca/en
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment There are several options available when doing busi - ness in Canada. The choice of structure is generally dictated by a number of factors, based mainly on tax and liability considerations. The most used structures are: • corporations; • unlimited liability companies (ULCs); • partnerships; • joint ventures; and • sole proprietorships. Corporations Businesses are generally carried on by corporations, which are legal entities with a patrimony distinct from that of their shareholders. These entities may be incor - porated under the Canada Business Corporations Act or under an equivalent law of a province or territory. Their popularity stems from two main factors: • the shareholders’ liability is limited to their invest - ment in the corporation; and • the corporation is taxed as a separate entity, gen - erally at lower rates than individuals. ULCs ULCs are a form of corporation that’s only available in three Canadian provinces (Alberta, Nova Scotia and British Columbia), and the specificities may vary between each jurisdiction. ULCs are distinct legal enti -
ties, but in some situations the shareholders’ liabil - ity is unlimited. Under Canadian tax laws, ULCs are considered corporations and are taxed as separate entities. They’re sometimes used where there are US shareholders, since ULCs may be treated as “disre - garded entities” under US tax laws, therefore leaving taxation of the ULC’s income in the US shareholders’ hands directly, for US tax purposes. Partnerships Both general partnerships and limited partnerships are relationships governed by provincial legislation between two or more persons who carry on a busi - ness. In a general partnership, each partner is liable for the partnership’s liability in relation to third parties. In a limited partnership, there are two kinds of part - ners: • general partners, who are exposed to unlimited liability; and • limited partners, whose liability is limited to their capital investment if they take no part in the man - agement or control of the business. A partnership is not subject to income tax as a sepa - rate entity. Rather, the partnership acts as a “flow- through” entity where the net income is calculated at the partnership level and allocated to its partners, who are liable for the taxes on such income.
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