Introduction
Canada welcomes international participants in its economy and business community. A focus of Aird & Berlis LLP is to represent international clients investing in Canada and to assist domestic clients in their business and financial dealings with international participants. At Aird & Berlis LLP, we have extensive experience and expertise in acting for international and Canadian clients. We are very proud of the international recognition given to various members of our firm by authoritative guides, including: The International Who's Who of Business Lawyers; Chambers Global; The Legal 500 Canada; Martindale-Hubbell Bar Register of Preeminent Lawyers; Legal Media Group Guides to the World's Leading Lawyers; International Tax Review – North America Guide; The Canadian Legal Lexpert Directory; The Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada – "40 Repeatedly Recommended Canadian Corporate Mid-Market Lawyers"; The Lexpert Guide to the Leading US/Canada Cross-border Corporate Lawyers in Canada; and The Best Lawyers in Canada.
We are the Canadian gateway for our international clients. We represent a broad range of business entities and individuals. We act for international entities doing business in Canada and Canadian entities doing business abroad. We are dedicated to providing counsel to our clients with respect to their international business activities with a particular focus on taxation, corporate finance (including mergers and acquisitions), securities, financing and real estate investments. We make your business our business and we are ready to assist your business at any time.
Our dedication to the international business arena has been exemplified by our commitment to our international practice. Our lawyers' commitment is evidenced by our active participation in various international associations where we learn from our colleagues around the world including: AIJA (International Association of Young Lawyers); American Bankruptcy Institute; American Bar Association; American Intellectual Property Law Association; American Real Estate Society, Association of Commercial Finance Attorneys; Inter-American Bar Association; International Association of Restructuring, Insolvency, and Bankruptcy Practitioners; International Bar Association; International Council of Shopping Centres; International Fiscal Association; International Municipal Lawyers Association; International Project Finance Association; International Swaps and Derivatives Association; International Trademark Association; and International Women's Forum; among many others.
Constitution, Government and Legal System
Canada was created in 1867 and currently consists of ten provinces and three territories. Canada is a parliamentary democracy whose form of government is a constitutional monarchy with Queen Elizabeth II as its head of state. The Governor General, to whom The Queen has delegated all of her powers over Canada (except the power to appoint or dismiss the Governor General), is obliged to follow the wishes of Canada's elected representatives. As The Queen's representative in Canada, the Governor General's role is largely ceremonial. Canada's two official languages are English and French and both have equal status in federal courts, Parliament and in all federal institutions.
GOVERNMENT AND POLITICS
Canada is a federal state in which legislative power is constitutionally divided between the federal government and the provincial governments. A third level of government, municipal or local government, has only the powers granted to it by the applicable provincial government. The federal and the provincial governments have exclusive jurisdiction and legislative powers over specified matters. The federal government also has "residual" jurisdiction over matters not specifically assigned to the provinces. In addition, while Canada's three territories (Yukon, Northwest Territories and Nunavut) have legislatures and govern themselves on local matters, their constitutional responsibilities are fewer than those of the provinces.
The federal government has control over matters of national interest, such as trade and commerce, transportation and communication, banking, currency, customs and excise, external relations, defence and criminal law. The provincial governments have power over matters of a local nature, such as property and civil rights within the province, municipal institutions, education, health and welfare, and the administration of justice. For more than three decades, Canada has had the Canadian Charter of Rights and Freedoms, which imposes limitations on government powers in order to protect civil liberties.
Canada has a parliamentary government. The legislative power of the federal government is vested in the Parliament of Canada, which consists of the Crown, an upper house, known as the Senate, and a lower house, known as the House of Commons. The members of the House of Commons (known as Members of Parliament, or MPs) are chosen in a general election held on the third Monday of October in the fourth calendar year following the last general election, though there is no prohibition on a general election being called on another date, when, on the advice of the Prime Minister, the Governor General dissolves Parliament. The federal government is headed by the Prime Minister, who is normally the leader of the political party that has the most members in the House of Commons. The members of the Senate are currently appointed by the Governor General on the recommendation of the Prime Minister, and appointments are distributed on a regional basis.
Canada's provinces have systems of government which parallel that of the federal government in several ways. A premier leads each provincial government by virtue of being the leader of the political party with the most support in the provincial legislature, and forms a cabinet from the elected members of the governing party. As the federal and the provincial governments are elected separately, there may be different political parties in power at each level. There are no provincial bodies equivalent to the Senate.
LEGAL SYSTEM
There are two legal systems in Canada: British-based common law and European-style civil law. Civil law predominately applies in the province of Québec, and common law applies in all other provinces and territories. Both legal systems are subject to the Constitution of Canada.
The Supreme Court of Canada is Canada's highest court. It is the final court of appeal having jurisdiction to hear appeals from the courts of appeal of each province, as well as from the Federal Court of Appeal, which has jurisdiction over a relatively small range of specialized areas under the jurisdiction of the federal government, such as intellectual property. The Supreme Court of Canada consists of nine judges, three of whom must be from the province of Québec. The judges of the Supreme Court, the Federal Court and certain provincial courts (so-called "Superior Courts") are appointed by the Governor General on the advice of the Prime Minister and cabinet.
Vehicles for Doing Business
In selecting the most appropriate vehicle for carrying on business in Canada, foreign entities will often be driven by tax preferences. Other factors that should be considered in determining the form of the business organization include potential liabilities, the method of financing and the nature of a particular business. The most common form of business organization in Canada is a corporation. Foreign entities may also consider conducting business in Canada through a branch office, partnership, limited partnership, franchise and licensing arrangement, joint venture, or by entering into contracts with Canadian distributors and independent agents.
CORPORATIONS
Overview
A foreign entity may choose to carry on business in Canada through a Canadian subsidiary corporation. A corporation with share capital is the form of business enterprise used most frequently to carry on commercial activities. A corporation is a legal entity with a separate legal existence from its shareholders, has perpetual existence and, unless its constating documents provide otherwise, has all the rights, powers and privileges of a natural person. A corporation offers the greatest flexibility in both the structuring of decision-making authority and of investment in the business. Its separate legal existence, however, also means that a corporation is subject to separate reporting, regulatory and filing requirements imposed by various levels of government.
Incorporation as a Federal or Provincial Corporation
In Canada, a corporation may be incorporated under federal law pursuant to the Canada Business Corporations Act or under the corporate statute of any province or territory. The key distinction between the two types of corporations is that a federal corporation may carry on business in any province or territory provided that it complies with the applicable registration and reporting requirements of each province. In contrast, a provincial corporation is required to obtain an extra-provincial licence and register in any other province where it carries on business. Many incorporation statutes have minimum Canadian residency requirements for directors.
Unlimited Liability Companies
Unlimited liability companies are flow-through entities that may appeal to foreign entities for tax purposes, and are available under the incorporate statutes of certain provinces.
OTHER BUSINESS VEHICLES
Branch Office
A non-resident foreign corporation may choose to carry on business in Canada through an unincorporated branch office. A branch operation is not a separate legal entity and, accordingly, exposure to debts, liabilities and obligations of the Canadian operation are important considerations. In addition, the foreign corporation will be subject to federal and provincial laws and must obtain a licence or otherwise register in all provinces in which it carries on business.
Partnerships
A general partnership is a relationship where two or more persons, either individuals or corporations, carry on a business in common with a view to profit. The partnership is not a legal entity separate from the partners. Subject to the provision of any agreement between the partners, each partner is allocated a specified share of the profits and losses of the partnership business and is entitled to take part in the management of the partnership business. A separate income tax return is not required from a partnership, although in many cases an information return is required for tax purposes. The tax consequences of a partnership's business activities flow through to the individual partners in their respective proportions and are reported upon individually in each partner's tax return. All partners assume unlimited liability for the debts and obligations of the partnership.
Limited Partnerships
A limited partnership is a partnership with unique characteristics. It is comprised of: (a) one or more general partners who manage the business and assume all liabilities of the limited partnership; and (b) limited partners whose liability is limited to their contribution to the partnership. In Ontario, in order to maintain limited liability status, limited partners are not permitted to take part in the management of the business.
Except in certain circumstances, the flow-through features and tax consequences of a general partnership are the same for a limited partnership. In essence, a limited partnership combines the tax benefits of a partnership with the advantages of limited liability.
Franchising
A foreign entity may expand its business into Canada by means of a franchising arrangement. In a typical franchise arrangement, a franchisor develops a business system, in association with a trademark, and licenses the use of that system to a franchisee. The franchise relationship is governed by a franchise agreement which sets out the and obligations of the parties and the operating principles of the business system. Foreign entities can choose to set up a separate Canadian entity through which Canadian licenses may be granted, or, in certain circumstances, can grant licences directly from the foreign country to Canadian franchisees.
Certain provinces have specific legislation governing the sale of franchises and impose specific disclosure requirements.
Joint Ventures
The term "joint venture" is commonly used to describe a contractual business arrangement between two or more parties that have agreed to combine complementary resources for a particular undertaking or specific business venture without the formality of a new legal entity such as a corporation or limited partnership. A joint venture is not recognized as a separate legal entity and therefore, for tax purposes, income and losses are calculated separately according to the business structure of each party.
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