Once you’ve decided to incorporate, the next question catches many Toronto business owners off guard: should you incorporate under Ontario law or federally? Both routes create a real corporation that protects your personal assets, and both can be done online in a day or two. But there are differences that matter, depending on your plans. Let’s walk through them.
The basic difference
An Ontario corporation is created under Ontario’s Business Corporations Act and registered through the Ontario Business Registry. A federal corporation is created under the Canada Business Corporations Act and registered with Corporations Canada.
It’s a common myth that federal incorporation changes your taxes. It doesn’t. Your corporate taxes depend on where your business actually earns its income, not where it was incorporated.
Name protection
This is the biggest reason people choose to incorporate federally. A federal corporation’s name is protected across Canada, so no other federal corporation can use the same or a confusingly similar name. An Ontario corporation’s name is generally protected only within Ontario.
If you plan to expand into other provinces or build a national brand, that broader protection can be valuable. Keep in mind, though, that corporate name protection isn’t the same as a trademark. If your brand matters, a registered trademark is the stronger shield.
Cost and paperwork
The government fees are fairly similar. Federal incorporation online currently costs about $200, while Ontario incorporation online costs about $300. The bigger difference is ongoing paperwork.
An Ontario corporation files its annual return with Ontario. A federal corporation that operates in Ontario has to file annual returns with Corporations Canada and also register with Ontario, and it must keep both sets of records up to date. In other words, federal incorporation can mean more filings to keep track of each year.
Director rules
Ontario no longer requires any of a corporation’s directors to be Canadian residents. Federal corporations still generally need at least 25% of their directors to be resident Canadians, or at least one if there are fewer than four directors. For founders living outside Canada, or teams with international partners, this can be a deciding factor.
So which one should you choose?
If your business will operate mainly in Ontario and you want to keep things simple, an Ontario corporation is usually the practical choice. If you’re planning to operate across Canada from the start, want national name protection, or expect to raise investment from people who prefer federal corporations, federal incorporation may suit you better.
Either way, incorporation is only the first step. You’ll still need proper bylaws, organizational resolutions, a share structure that fits your plans and, if you have co-founders, a shareholder agreement. Getting those right at the start is far easier than fixing them later.
Get it set up properly
Our article on why every startup in Toronto needs a business lawyer covers the other early decisions founders face. If you’re ready to move ahead, our corporate law team can incorporate your business in Ontario or federally, set up your corporate records and draft the agreements you’ll need. For ongoing help after launch, ask about our legal support for small and medium businesses.
Talk to a Toronto small business lawyer.
This article is general information, not legal advice. Government fees can change; check current rates before filing.
