ESTABLISHING A BUSINESS ENTITY IN CANADA INTRODUCTION Bilingual and Bi-Juridical Canada is a bilingual, bi-juridical, and multi- cultural country, composed of 10 provinces and 3 territories. English and French are federally mandated official languages pursuant to the Official Languages Act (Canada). French is the official language in the Province of Québec pursuant to the Charter of the French Language (Québec). The legal system of all provinces and territories (other than the Province of Québec) is based upon the Common Law, derived from England. Québec (like the American State of Louisiana) is governed by the Civil Law system, derived from the French Napoleonic Code, as reflected in the Civil Code of Lower Canada adopted in 1866 (one year prior to Confederation) and replaced as of January 1 st , 1994, by the Civil Code of Québec (the “CCQ”). Levels of Government and Jurisdiction Canada has several levels of government: federal, provincial/territorial, and municipal. The allocation of exclusive jurisdiction between the federal and provincial/territorial governments was established under the British North America Act of 1867 at the time of Confederation. Generally speaking, most matters regarding private property, commerce and business fall under provincial/territorial jurisdiction, with the exception of sectors such as airlines, marine transportation and pollution, railways and cross-border and extra-provincial transportation and telecommunications, all of which are federally regulated. The federal government also deals with bankruptcy, competition, foreign investment, criminal and family law, as well as an array of other matters where it is deemed to be acting

“to the general advantage of Canada”. This has proven to be an ongoing source of friction between the federal government and the various provinces and territories . TYPES OF ENTITIES AVAILABLE IN CANADA THROUGH WHICH TO CONDUCT BUSINESS Corporations In Canada, one may incorporate federally under the Canada Business Corporations Act (the “CBCA”), or under the corporate statute of a particular province or territory. Most provinces and territories have adopted Business Corporations Acts, which largely mirror the CBCA and replace the former letters patent systems. Generally speaking, incorporation under the CBCA is the most appropriate option if the corporation will carry on business in more than one Canadian province or territory. Alternatively, provincial or territorial incorporation would be better if the operations will be limited to that jurisdiction, as there are savings to be achieved by making corporate filings and otherwise complying only with the provincial/territorial rules, rather than filing annual returns and other notices at both the federal and provincial/territorial levels. Another significant factor to consider in determining where to incorporate is the fact that the majority of Canadian jurisdictions, including Ontario and Québec, do not have residency requirements for directors of a corporation. This is beneficial to foreign companies and investors that wish to carry on business in one of these jurisdictions. However, for companies incorporated federally under the CBCA or in Manitoba, there is still a requirement that a certain percentage of the corporation’s directors be Canadian residents.

ILN Corporate Group – Establishing a Business Entity Series

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