What Are the Different Types of Corporations in Canada?Brian Jang ON March 16, 2020
If you are a Canadian starting your own business, you have several choices to make, not the least of which is what type of business structure you plan to follow. If you choose to create a corporation, you will have several types to choose from.
There are several reasons to choose a corporation, such as the difference in taxation, limited liability, and the ability to do business with the government when other businesses may not.
Different types of corporations have their own requirements, explained below:
Canadian-Controlled Private Corporations (CCPC)
This one is straightforward, as one of the conditions is specified right in the name: private ownership. In addition to this, it must also meet each of the following conditions at the end of the tax year.
- The corporation must be in Canada and must have been either incorporated in Canada or residing in Canada from June 18, 1971, to the end of the tax year.
- It cannot be controlled directly or indirectly by non-resident persons.
- It cannot be controlled directly or indirectly by public corporations (other than a venture capital corporation.) Further details can be found in Regulation 6700 of the Income Tax Regulations.
- It may not be controlled by a Canadian resident corporation which lists its shares on a designated stock exchange outside of Canada.
- No class of its shares of capital can be listed on a designated stock exchange.
CCPCs enjoy corporate tax advantages. Aside from the small business tax deduction, there are research and development tax credits for specific activities, as well as enhanced investment tax credits and capital gains tax exemptions for shareholders selling shares.
Other Private Corporations
These types of corporations must also be private and a resident in Canada. Additionally, they must meet the following conditions:
- They must not be controlled by one or more public corporations (other than a venture capital corporation).
- They cannot be controlled by one or more prescribed Federal Crown corporations defined in Regulation 7100.
A corporation that has a class of shares listed on a designated Canadian stock exchange can be defined as a public corporation. It may also be designated as such under Regulation 4800(1) of the Income Tax regulations. It may likewise choose (under Regulation 4800(2) of the Income tax Regulations) to not be designated a public corporation.
Control by a Public Corporation
This class of corporation is a subsidiary of the Public Corporation described above, although it doesn’t qualify as a public corporation when filing the T2 Corporate Income Tax Return.
Corporations that cannot be classified as any of the above are grouped under “other corporation.”
Making Your Choice
Forming a corporation offers you increased credibility as well as liability protection, though it can be more expensive to create than a partnership or sole proprietorship. If you choose to form a corporation, corporate tax advantages make CCPCs an attractive choice, though many businesses will wait until revenues reach $50,000 per year to form one due to the amount of paperwork and higher cost involved.
Contact BCJ Group for all your accounting needs.