CANADA

INCORPORATING IN CANADA
GENERAL FEATURES
GOVERNMENT IN CANADA

GENERAL INFORMATION
A country originally inhabited by various Native American peoples, mainland Canada was explored by the English and the French beginning in the late 15th century. The French established the first permanent settlement at Port Royal (now Annapolis Royal) in 1605 but gradually lost control of eastern Canada, which was ceded to England in 1763 after the Seven Years' War. The Dominion of Canada was formed in 1867 and extended to the western provinces in 1905; Newfoundland formally joined the federation in 1949. The Statute of Westminster (1931) confirmed Canada's status as an independent nation within the Commonwealth. Ottawa is the capital and Montreal the largest city.

POPULATION
The population of Canada is approximately 31,600,000.

POLITICAL STRUCTURE
Canada constitutes of 10 provinces and 3 territories*; Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories*, Nova Scotia, Nunavut*, Ontario, Prince Edward Island, Quebec, Saskatchewan, Yukon Territory*. It operates under a constitutional monarchy that is also a Parliamentary Democracy and a Federation.

Canada declared its independence on July 1st 1867, and its constitution is made up of unwritten and written acts, customs, judicial decisions, and traditions; the written part of the constitution consists of the Constitution Act of 29 March 1867, which created a federation of four provinces, and the Constitution Act of 17 April 1982, which transferred formal control over the constitution from Britain to Canada, and added a Canadian Charter of Rights and Freedoms as well as procedures for constitutional amendments.

The Legal System is based on English common law, except in Quebec, where civil law system based on French law prevails. Canada accepts compulsory ICJ jurisdiction, with reservations.

The chief of state is Queen ELIZABETH II (since 6 February 1952), represented by Governor General Michaelle JEAN (since 27 September 2005). The Head of Government is Prime Minister Stephen HARPER (since 6 February 2006). The Legislative Branch of the Government (bicameral Parliament or Parlement) consists of the Senate or Senat (members appointed by the governor general with the advice of the prime minister and serve until reaching 75 years of age; its normal limit is 105 senators) and the House of Commons or Chambre des Communes (308 seats; members elected by direct, popular vote to serve for up to five-year terms).

The Judicial Branch of the Government consists of the Supreme Court of Canada (judges are appointed by the prime minister through the governor general); Federal Court of Canada; Federal Court of Appeal; Provincial Courts (these are named variously Court of Appeal, Court of Queens Bench, Superior Court, Supreme Court, and Court of Justice)

INFRASTRUCTURE AND ECONOMY
As an affluent, high-tech industrial society in the trillion dollar class, Canada resembles the US in its market-oriented economic system, pattern of production, and affluent living standards. Since World War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban. The 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which includes Mexico) touched off a dramatic increase in trade and economic integration with the US.

Given its great natural resources, skilled labor force, and modern capital plant, Canada enjoys solid economic prospects. Top-notch fiscal management has produced consecutive balanced budgets since 1997, although public debate continues over how to manage the rising cost of the publicly funded healthcare system.
Exports account for roughly a third of GDP. Canada enjoys a substantial trade surplus with its principal trading partner, the US, which absorbs more than 85% of Canadian exports. Canada is the US' largest foreign supplier of energy, including oil, gas, uranium, and electric power.

LANGUAGE
The official and spoken languages are English and French.

CURRENCY
The Canadian Dollar (also referred to as the "loonie"), which is freely exchangeable. All Financial Institutions and businesses also operate and accept the US Dollar.

EXCHANGE CONTROL
None.

TYPE OF LAW
Common Law, based on English Common Law.

PRINCIPAL CORPORATE LEGISLATION
The Companies Acts 1931 to 1993.
Limited Liability Companies Act 1996

COMPANY INFORMATION

TYPE OF COMPANY FOR INTERNATIONAL TRADING AND INVESTMENT
There are different types of corporations for tax purposes. The corporation type determines whether or not the corporation is entitled to certain rates and tax deductions. - Private Corporation - Canadian-Controlled Private Corporation (CCPC) - Other Private Corporation - Public Corporation - Corporation Controlled by a Public Corporation - Other corporations - Private Corporation.

A private corporation is a corporation resident in Canada that is neither a public corporation nor controlled by a public corporation.

Canadian-Controlled Private Corporation (CCPC) - A CCPC is a private corporation that is also a Canadian corporation. For a corporation to be considered a CCPC, it has to meet all of the following requirements at the end of the tax year: it is a private corporation; it is a corporation that is resident in Canada and was either incorporated in Canada or resident in Canada from June 18, 1971 to the end of the tax year; it is not controlled directly or indirectly by one or more non-resident persons; it is not controlled directly or indirectly by one or more public corporations (other than a prescribed venture capital corporation, as defined in the Income Tax Regulations 6700); it is not controlled by a Canadian resident corporation that lists its shares on a prescribed stock exchange outside of Canada; it is not controlled directly or indirectly by any combination of persons described in the three preceding conditions; if all of its shares that are owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation with a class of shares listed on a prescribed stock exchange were owned by one person, that person would not own sufficient shares to control the corporation; and no class of its shares of capital stock is listed on a prescribed stock exchange.

Other Private Corporations -these are generally corporations resident in Canada that are controlled directly or indirectly by non-residents. To be considered other private corporation, the corporation has to meet all of the following requirements at the end of the tax year: it is resident in Canada; it is not a public corporation; it is not controlled by one or more public corporations; it is not controlled by one or more prescribed federal Crown corporations (as defined in Regulation 7100); and it is not controlled by any combination of corporations described in the two preceding conditions.

Public Corporation -To be a public corporation, a corporation must be resident in Canada and meet either of the following requirements at the end of the tax year: it has a class of shares listed on a prescribed Canadian stock exchange; or it has elected, or the Minister of National Revenue has designated it, to be a public corporation and the corporation has complied with prescribed conditions under Income Tax Regulations 4800: on the number of its shareholders, the dispersing of the ownership of its shares, the public trading of its shares, and the size of the corporation. If a public corporation has complied with certain prescribed conditions under Regulation 4800, it can elect, or the Minister of National Revenue can designate it, not to be a public corporation. A public corporation that elects or is designated not to be a public corporation becomes a private corporation.

Corporation Controlled by a Public Corporation This is a corporation that is controlled by a Canadian public corporation. If a corporation is a Canadian subsidiary of a public corporation, it does not qualify as public corporations for the purpose of determining the type of corporation.

Other Corporations These include non-resident-owned investment corporations and Crown corporations. Most business enterprises in Canada are corporations incorporated under federal, provincial or territorial corporate legislation. Provincial and territorial legislation is largely consistent with the federal Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the "CBCA").

Corporate legislation and common law impose on directors the duty to manage the business and affairs of the corporation. Corporate legislation further provides that in exercising the duty to manage the business and affairs of the corporation, the directors are under a fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation. In carrying out these duties, directors are obligated to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Investors can apply to a court for compensation in the event of "oppressive" action by their corporation.

Legislation governing the formation and operation of other forms of business enterprise, such as partnerships and trusts, is less extensive. Trustees have fiduciary responsibilities to trust beneficiaries. Most other aspects of the corporate governance of a non-corporate enterprise will be governed by the agreement or indenture under which the enterprise was established.

PROCEDURE TO INCORPORATE
Submission of Memorandum and Articles of Association, nominating the first directors and secretary, and advice of the situation of the Registered Office and the form giving name approval

RESTRICTIONS ON TRADING
Canadian Corporations are not allowed to:

Undertake banking or insurance activities without a license;
Undertake investment business other than the investment of the company's own assets activities without a license;
Neither solicit funds from the public nor offer their shares or membership to the public activities without a license;

POWERS OF COMPANY
A Canada Corporation has all the powers of a natural person.

LANGUAGE OF LEGISLATION AND CORPORATE DOCUMENTS
English, French (optional in Federal Corporations and compulsory in Quebec)

REGISTERED OFFICE REQUIRED
Canadian Corporations must maintain a registered office in Canada.

SHELF COMPANIES AVAILABLE
Yes.

TIME TO INCORPORATE
Two days, subject to name approval.

NAME RESTRICTIONS
A name that is similar to or identical to an existing company. A name that is known to exist elsewhere. A name that implies illegal activities. A name that implies royal or government patronage.

Many names require justification or high capitalization to allow use. Words such as "International", "European" or other words indicating an international presence will only be approved if the Company is incorporated worldwide and has the ability to prove that this is the case. The same applies for "Canada".

Use of the word "Group" will only be approved if the company can provide documentary evidence that the company owns a group of companies.
Numbered Companies are also acceptable, e.g. 012345BC Ltd.

LANGUAGE OF NAME
Names can be expressed in any language using the Latin alphabet, if the Registrar of Companies is in receipt of an English translation and the name is not considered undesirable.

NAMES REQUIRING LICENSE OR CONSENT
The following names or their derivatives: bank, building society, savings, loans, insurance, assurance, reinsurance, co-operative, council, Chamber of Commerce, trust, municipal and finance or their foreign-language equivalents.

SUFFIXES TO DENOTE LIMITED LIABILITY
Private Limited Companies must utilize Incorporation, Corporation, Limited, Inc., Corp. or Ltd as a suffix.

COMPLIANCE
AUTHORIZED AND ISSUED SHARE CAPITAL
Canadian Corporations have a minimum authorized share capital of $1 or its currency equivalent, this being the maximum for the minimum capital duty payable upon incorporation. The minimum issued capital is one share of par value.

CLASES OF SHARES PERMITTED
Canadian Corporations may have registered shares, preference shares, redeemable shares and shares with or without voting rights.

TAXATION
All corporations that carry on business in Canada or dispose of taxable Canadian property have to file a T2 corporate income tax return each year. This includes:

Non-profit organizations
Tax-exempt corporation
Inactive corporations
Quebec, Ontario, and Alberta administer their own corporate income tax systems.

Corporations that earn income in these provinces have to file separate provincial and federal corporate income tax returns. The CRA administers corporate income tax

CANADA REVENUE AGENCY (CRA)
In Canada, there are several taxes, tariffs, and duties. The Canada Revenue Agency (CRA) is the federal government department responsible for administering tax laws for the Government of Canada and for most provinces and territories. The most common taxes are:

Income tax
Employment insurance premiums (EI)
Canada Pension Plan contributions (CPP)
Provincial sales taxes (PST)
The goods and services tax (GHT/HST)

DOUBLE TAXATION AGREEMENTS
Canada maintains active Double Taxation Agreements with the following countries:

FINANCIAL STATEMENT
There is a requirement to file audited financial statements with the authorities. Failure to maintain accounts or make them available for inspection at a company's registered office is an offence punishable by imprisonment or a fine. The Canada Revenue Agency reserves the right to call in the financial records for inspection at anytime.

DIRECTORS
The minimum number of directors is normally one (two are required in certain Provinces), they may be of any nationality or residence. Please note that some Provinces require a resident director. Bodies corporate may not be appointed as directors.

COMPANY SECRETARY
Canadian Corporations require a company secretary. The Company Secretary must be a natural person but may be of any nationality and reside anywhere in the world.

SHAREHOLDERS/MEMBERS
The minimum number of shareholders is one.

OTHER TAX PLANNING ENTITIES
Other business entities used for international tax planning include:
Partnerships
Trusts.

Further information on these alternative structures is available on request.

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