Canada: Choosing to incorporate your subsidiary in British Columbia

In Canada, much like in the US, a corporation can be formed under the laws of any of the Canadian provinces and can then operate anywhere in Canada. The corporation does not need to have any operational connection to the chosen province of incorporation. Canada also offers the additional option of incorporating under federal law. And, just as Delaware is the corporate law of choice in the US, incorporation under British Columbia (BC) law is often seen as a desirable option for Canadian subsidiaries of global businesses.

BC has consistently been at the forefront in the movement to modernize Canadian corporate law and make it more user friendly. It was one of the first provinces to do away with the requirement that a corporation have at least one director resident in Canada (which remains for federal corporations and in many provinces).

BC is also one of only three provinces that offers the ULC form of corporation, an odd type of company that does not shield its shareholders from liability, but as a result offers tax planning opportunities by being a pass-through entity for US tax purposes while a taxable entity for Canadian tax purposes. On the liability side, with a BC ULC, shareholders only become liable for debts that remain after liquidation. This may be preferable over the Alberta form of ULC, where shareholders are jointly and severally liable for all of the ULC’s debts at all times. Even where there is no current need to organize as a ULC, the ease with which an ordinary BC corporation can be quickly converted to a ULC offers an uncomplicated option for future planning.

BC is a flexible, efficient and responsive jurisdiction when it comes to corporate structuring and governance for Canadian subsidiaries.  

BC corporations are also among the most flexible when it comes to capital contributions and dividend distributions. A BC corporation is generally allowed to distribute dividends so long as it remains able to pay its liabilities when due. In most other jurisdictions (including Ontario, Alberta and federal corporations), an additional requirement is that the realizable value of the corporation’s assets must remain at least equal to the aggregate value of the corporation’s liabilities and legal capital.

BC corporations are also generally permitted to add any contribution received (or any cash or other asset it holds) into the corporation’s legal capital. In some other jurisdictions there are restrictions for adding to legal capital without issuing shares – for example, Alberta only allows amounts to be added out of retained earnings or other surplus accounts.

From a maintenance and process standpoint, when it comes to BC corporations there are few requirements for original signatures, notarizations or other time-consuming formalities. Almost all fundamental filings (incorporations, amalgamations, name changes, changes to articles, continuations) are done online and can be effective either immediately or at a specified future date and time requested, which can be quite useful in reorganization plans where sequencing matters. And good standing certificates and other corporate records maintained by the BC registrar are instantaneously produced upon request.

All in all, BC is a flexible, efficient and responsive jurisdiction when it comes to corporate structuring and governance for Canadian subsidiaries.

DLA Piper has a wealth of experience advising on Canadian corporate structuring choices that fit the specific needs of global clients. Our Vancouver office has been serving the business community for over 130 years. To learn more about our experience in this area, please contact any of the authors.

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