Canada is one of the United States' most important economic partners. Home to one of the best public education systems in the world, Canada is a booming talent hub across all industries, including tech, financial services, healthcare, and agriculture. Despite being a relatively small country by population, Canada's GDP is approaching $2 trillion. Companies looking to expand globally can hire top Canadian talent by partnering with an EOR service like Via.
Creating a Canada subsidiary is a popular move for many international companies that want to expand and work within one of the 13 Canadian provinces, including Alberta and Ontario. However, there are several steps to follow and requirements to meet to set up your new subsidiary in Canada.
Researching Canadian labor laws is paramount as you begin to set up a subsidiary in the country. Eventually, you will need to determine whether you want to set up a subsidiary, open an entity, or partner with an employer-of-record (EOR) provider like Via.
One of the first things you need to consider before opening a subsidiary is whether or not it needs to become provincially or federally incorporated.
This overarching form of incorporation allows your subsidiary to establish a presence in all 13 provinces; however, the subsidiary will also need to be registered in each Canadian jurisdiction where business will be conducted.
The other option–provincial incorporation–is specific to the jurisdiction in which your subsidiary is located. The rules in Alberta are different from those in Manitoba, for instance. Your corporation’s subsidiary may apply for additional registrations on the provincial level to operate in multiple jurisdictions.
The ultimate question is,Does your business intend to solely expand in one province or cross over into multiple provinces? Answering this question will guide your initial decision. If you plan to invest in more than one, federal incorporation is the way to go.
Here are the individual steps required to form a Canadian subsidiary:
Choose a distinctive name that does not infringe upon existing names or trademarks
Prepare articles of incorporation
Establish a registered office address and board of directors
File appropriate forms and pay required fees
Complete bylaws, organizational minutes, and issue shares
Keep your subsidiary in good standing
File annual returns and report any changes or amendments
Maintain corporate records
Prepare a corporate minute book including, but not limited to:
Copies of the Articles of Incorporation
Shareholder meeting minutes
Directors’ meetings minutes
Share transfer register
Completing these steps and fulfilling the requirements is vital to establishing a legitimate and comprehensive subsidiary.
Each Canada subsidiary law depends on the province in which your corporation has elected to operate, so familiarizing yourself with your specific province’s laws and regulations is essential. For instance, in some provinces, a corporation must have at least 25% of its board of directors represented by Canadian citizens who are current residents of Canada.
In order to maintain compliance in Canada, the services of an EOR or Professional Employer Organization (PEO) may be able to help.
Business subsidiaries are usually filed as limited liability corporations, which means the parent or holding company is ultimately responsible for them. But some subsidiaries, based on their location, have the option of filing as an unlimited liability company.
Unlimited liability companies have the opportunity to create favorable tax outcomes, as well as the option to conduct business through a partnership or trust, but additional stipulations are involved.
One of the most important federal regulations to be aware of is the Canada Business Corporations Act (CBCA), which regulates business structures by defining what a corporation is, how it should run, what kind of businesses receive special tax breaks, and how financing is handled.
The CBCA also outlines how a corporation or business should be founded, the type of reporting requirements that exist and apply, how to dissolve a company, and what activities are illegal, like insider trading.
At face value, opening a subsidiary may appear daunting for a first-time business working to expand across borders. After all, there’s quite a bit to know. However, if your corporation has the resources and time to devote to the process, there are many benefits to experience–namely, growing your international reach.
Since subsidiaries are managed under the guidance of a parent or holding company elsewhere, that parent company is responsible for any fines or legal issues. But even with the connection to a parent corporation, subsidiaries enjoy a sense of independence and the ability to incorporate local culture, practices, and focuses into their provincial operations.
General pros to setting up a Canada subsidiary include tax advantages, loss management, streamlined efficiency, and ease of overall establishment–if you are well-versed in the necessary regulations.
Some cons that may arise with opening a subsidiary are more legalities, potentially complex financials, and increased liability for the parent company. Navigating laws, regulations, cultural differences, and industry restrictions may also occur, but in these types of situations, an EOR or PEO can help your grow more quickly.
If your business has established a Canada subsidiary, then you can work with a PEO as co-employers of your local employees. However, a business cannot engage a PEO without having a physical business location in Canada, which means setting up an entity.
If you’re looking to hire employees in a different country and you’re seeking assistance with compliance and HR-related responsibilities, then working with an EOR may be the best choice.
If you have a subsidiary or an entity, consider partnering with a PEO. Otherwise, you’ll need to contract with an EOR if you’d prefer to delegate specific responsibilities.
Companies of all sizes want to hire employees in Canada, but don’t know how to navigate the country’s local labor regulations. Via makes hiring Canadian talent and building your global team seamless. With our easy-to-use platform, Via helps you manage local HR processes for direct employment such as benefits, payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your employer-or-record/entity in Canada, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Canada with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.