Quebec's incorporation regime generally offers more flexibility than the federal regime. However, recent corporate transparency obligations shift the analysis even more, in favour of the provincial route.
The context
A joint-stock corporation can be incorporated either under the provincial regime or the federal regime. The differences between the Quebec Business Corporations Act and the Canada Business Corporations Act are numerous. In general, Quebec's incorporation regime offers more flexibility than the federal one. That said, federal corporations can have certain advantages for running a pan-Canadian or international business, although a provincial corporation can perfectly well do business outside its jurisdiction of incorporation.
Corporate laws are constantly evolving. We have recently seen significant changes, specifically regarding the declaration of ultimate beneficiaries (or individuals with significant control federally). We believe that these recent corporate transparency obligations favour the provincial regime over federal incorporation, for the reasons that follow.
Duplication of corporate transparency obligations
Unlike other provinces and the federal level, the Quebec legislator requires businesses to declare their ultimate beneficiaries regardless of their legal form or regime of incorporation. Therefore, except for certain exceptions provided by law, all businesses registered with the Quebec Enterprise Registrar must declare their ultimate beneficiaries, even if the business is federally or otherwise provincially incorporated.
Other provinces and the federal level provide only a "register of individuals with significant control" for corporations incorporated under their jurisdiction. In practice, this means a federal corporation must not only meet its obligations to maintain a register of individuals with significant control (which, since 2024, must be partly published online), but also declare its ultimate beneficiaries with the Quebec Enterprise Registrar.
This is a significant duplication of compliance costs, especially for corporations with a complex structure (for example, where a trust is a shareholder). The definition of "ultimate beneficiary" is in many respects radically different from the definition of "individual with significant control". A person could be an ultimate beneficiary for the purposes of Quebec legal publicity without being an individual with significant control federally.
"A federal corporation active in Quebec must keep two separate registers, with two different definitions of the same concept."
Business address
Since March 31, 2023, it has been possible to declare business addresses with the Quebec Enterprise Registrar, allowing individuals' real addresses to be hidden. However, the federal corporation register requires declaration of the real addresses of directors and individuals with significant control.
For federal-regime corporations, although they can declare business addresses in Quebec, their real addresses must still be made public in the federal register, which negates the advantage conferred by the Act respecting the legal publicity of enterprises that allows individuals' real addresses to be hidden.
Fines
Penalties for failing to comply with obligations regarding the declaration of individuals with significant control are extremely severe federally. The maximum fine is one million dollars and a maximum prison sentence of five years.
Conversely, the Quebec legislator has not provided specific penalties for ultimate beneficiary obligations. Any false or misleading declaration may result, for a corporation, in a maximum fine of $10,000.
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