There are various business forms available for registration in Canada. Among these, the private limited liability company or LLC. However, in Canada, the LLC is considered a hybrid business form that encompasses the characteristics of corporations and partnerships. Below, we present the main features of Canadian LLC and the requirements for opening such a business form. Our company formation agents in Canada can help you open an LLC in this country.
| Quick Facts | |
|---|---|
| Types of LLCs |
The standard form of a limited liability company (LLC) met across the world does not exist in Canada. The closest forms are either the limited liability partnership (LLP) or the corporation, which refers to a corporate body (the most important options being Canadian-Controlled Private Corporation or the Other Private Corporation). |
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Most suitable for |
The LLC can enter most of the business activities available in Canada, unless limitations are prescribed by the local law. |
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Minimum number of shareholders |
1 |
| Maximum number of shareholders (if applicable) | 50 |
| Law regulating the procedure of opening an LLC |
Investors can open an LLC in Canada following the regulations of the Business Corporations Act. |
| Institution in charge with the registration of the LLC |
Corporations Canada |
| Director requirements |
– minimum 1 director; – an age of minimum 18 years old; – the person must be an individual (not a corporate entity); – not be declared bankrupt; – not be declared incapable as per the Canadian laws. |
| Corporate taxes |
The standard national corporate tax is 38% (the net tax can be reduced to 15%). For small businesses, the reduced national tax is 9%. Regional corporate taxes apply and they vary from 0% to 16% depending on the income and the region. |
| Minimum requirements to open an LLC |
One can open an LLC in Canada after: preparing the incorporation documents,submitting them with the local authorities, selecting a suitable business address, having a unique corporate name, opening a corporate bank account, obtaining licenses and permits and the tax registration number. |
| Apply for a business number (yes/no) | Yes |
| Foreign ownership rules |
Foreign investors have the right to full ownership. |
| Who can register an LLC |
Both locals and foreign investors can open an LLC in Canada. |
| Statutory documents of an LLC |
The LLC gains legal personality through the articles of incorporation. |
| Documents to prepare for the incorporation |
– the articles of incorporation; – the lease/purchase contract for the company’s office; – the company’s Federal Business Number; – personal information on the shareholders; – information on the directors; – translated and notarized documents, where necessary. |
| Audit requirements (yes/no) | Yes |
The main characteristics of the LLC in Canada
Even if the corporation is the most employed type of company in Canada, there are businesspersons who prefer to open LLCs which usually have the following characteristics:
- they resemble sole proprietorships and partnerships, as they are considered unincorporated entities;
- from a taxation point of view, the owners of LLCs are taxed based on the personal income statements, as the income of the LLC is aggregated to their tax returns;
- LLCs, however, offer limited liability to the shareholders, and thus providing similar benefits to the Canadian corporation;
- with the help of LLCs, investors can enter various agreements and use the business form to sign on their behalf.
It is useful to know that the LLC is not a generally accepted business form in this country, which is why those who want to set up companies in Canada are usually recommended to use the corporation. If you need advice on the registration of a limited liability company, our local agents are at your disposition.
We can also help you if you need to open a company in another country, such as USA. There are a few types of LLCs in the USA and you should choose the right type for your business activities, while in Canada there is only the limited liability partnership (LLP) or the corporation that is similar to LLCs. In both countries, after opening the company, you will need to obtain business permits and licenses, according to your business activities. The taxation of companies is different from one state to another in the USA, while in Canada there is a reduced national tax of 9% for small businesses.
Registration options for LLCs in Canada
Just like any other type of structure, the LLC can be registered at a federal level or at provincial or territorial levels. The main differences between the registration formalities are related to the costs of the procedure (federal registration is slightly more expensive than provincial registration), however, an LLC can also be registered in several provinces.
Those who want to open an LLC in Canada need to follow the same steps as for any other type of company. They must also respect the conditions imposed by the Company Law.
Our Canadian company formation consultants can offer more information on the registration options for setting up a limited liability company.
Requirements for opening an LLC in Canada in 2024
As mentioned above, there are several requirements that need to be respected upon the incorporation of an LLC in Canada. These are:
- having a business address in the region (province) the company will operate;
- drafting the Articles of Association of the company;
- appointing the company officers;
- opening a bank account and depositing the share capital;
- submitting the documents for registration with the Trade Register;
- obtaining the tax identification code and GST number;
- applying for the necessary licenses before starting any activity.
Companies liable to the payment of the GST must pay a rate of 9% starting with 1 January 2024. The tax has been increased in 2024 from a rate of 8%, charged in the previous financial year. The tax formalities are completed through the representatives of the Canadian Revenue Agency (CRA).
Foreign investors operating through LLCs have the option of bringing various amendments to their businesses by filing Articles of Amendments with the Companies Register.
Documents to be prepared when opening an LLC in Canada
In order to create an LLC in Canada, an investor must prepare the Articles of Association, but also an Initial Registered Office address and first Board of Directors. These are questionnaires that need to be filled out and in which information about the registered address and directors of the company are provided. Also, the Board of Directors document must contain the signatures of all board members.
Our company registration advisors in Canada can help with the preparation of the documents you will need to submit when registering an LLC.
How long does it take to register an LLC in Canada?
The company registration timeline for a limited liability company is the same as for any other business form. However, one must consider if the business he or she wants to set up is a resident or non-resident company, as for the latter the procedure is lengthier.
According to a report issued by the World Bank, the registration timeline for a company in Canada is as follows:
- in the case of federal registration, the procedure takes around 1 week to complete;
- in the case of provincial registration, the procedure is completed in about 2 days;
- one must also consider the opening of the bank account which can take up to 1 month;
- the business licenses can also take time, and thus the registration time can increase to 2 months.
Are there any tax reductions in Canada in 2024?
If you develop a business activity through a LLC in Canada (also known as a corporation), and you qualify for various tax deductions as a small business, you must know that starting with 1st of January 2021, several Canadian provinces have reduced their corporate tax rates. For instance, the corporate tax for small businesses in Northwestern Territories is charged at a rate of 2% (decreased for 4%). The tax rate has been maintained throughout the years and it is applicable in 2024 as well.
In Yukon, the corporate tax for small businesses was reduced to 0% starting with 2021 and the tax rate is valid in 2024 as well. A 0% tax rate is also applied in the province of Saskatchewan.
Please mind that if you want to register an LLC in Canada in 2024 and you want to benefit from the lower corporate taxes, you can do so as long as you meet the income threshold (also know as business limit in Canada). The current threshold is maximum $500,000.
Foreign investors have several choices when it comes to starting a business in Canada. Those who decide for an LLC can rely on our agents in Canada. Do not hesitate to contact us for support in incorporating a limited liability company or any other business form in this country.
Additional information on how to register a business in Canada can be obtained from our consultants. Please know that our team can also help you in the process of obtaining a registered address for your business.
For this purpose, you can use the services of a virtual office, as long as this is a suitable way for you to develop your activities (it is generally suitable for small businesses).