There are many advantages to opening a Limited Liability Company (LLC) in Canada (which we will discuss below). But to open one, you must register your company first. Today we’ll talk more about limited liability and how to register your company in Canada. So let’s get started.
What is a Limited Liability Company?
A Limited Liability Company is a structured type of business wherein the company owners are not held personally liable for any debts of the company.
Limited Liability companies are much like a corporation, but also hold many similarities to a sole proprietorship or partnership as well. They are like corporations because they hold limited liabilities but like partnerships because they have flexibility in splitting profits.
What are the advantages of an LLC?
Many advantages come along with opening a Limited Liability Company. The main benefit, as you probably already suspected, is limited liability. When you own a partnership or sole proprietorship, you are considered one with your business. That means that any debts that have occurred within your business become personal debt.
But when you own a limited liability company, these liabilities become lessened. This means that if you incur debt in your business, your personal assets such as your home and bank account are still protected. In this sense, LLCs operate like corporations. That’s a huge benefit to have if your company ever undergoes difficult times.
We mentioned earlier that LLCs are also more flexible when it comes to ownership. Corporations can’t have more than 100 shareholders. But LLCs have zero restrictions on how many owners or the type of owners that a company can have. In this sense, LLCs are more like partnerships or sole proprietorships.
In many ways, LLCs are the best of both worlds in terms of partnerships/sole proprietorships and corporations. They also get the best of both worlds when it comes to taxes. In such a case, LLCs don’t have their own classifications. Instead, they can take on the category of partnerships, sole proprietorships, S corporations, or C corporations.
How do you Register an LLC in Canada?
Here’s the bad news. If you live in Canada, you can’t open a limited liability company for the simple fact that they do not exist in Canada. With that being said, because Canada has such a close partnership with the United States, we do allow limited liability companies from the US to expand into Canada and our provinces.
To do this, limited liability companies from the United States must register under Provincial Corporation laws, which vary from province to province.
For example, in British Columbia, limited liability companies from the United States would register the same way a corporation would be expected to do. In Manitoba, LLCs also register the same way a corporation would but are also expected to submit additional documents for the company.
In Newfoundland, LLCs must provide a copy of their Operating Agreement to the Director of Commercial Registrations. And in Ontario, LLCs do not register as corporations at all. Instead, they register under the Ontario Business Names Act.
Each other province also has its own rules and regulations for registering a Limited Liability Company.
Limited Partnerships in Canada
In Canada, the closest thing to a limited liability company is a Limited Partnership. In this type of business, one or more partners may not actively participate in running the business.
Instead, they may only have financial input, making their partnership limited. In such a case, liability for these partners would also be limited. This would be referred to as a limited liability partnership.
However, in most cases, Limited Liability Partnerships are only available to specific groups of professionals like doctors and lawyers. Note that the rules for limited partnerships differ from one province to another.
Professional corporations can also offer limited liabilities.
Can Canadians set up a Limited Liability Company in the United States?
Yes. Canadians can open up limited liability companies in the United States. However, this can be very messy when it comes to taxes.
Because the Canada Revenue Agency does not recognize limited liability companies and treats them as corporations, those who own an LLC in the United States may be taxed twice on their income. For this reason, it’s always better for Canadians to set up a regular Corporation if they are going to open a company in the United States.
If you are considering opening a limited liability company there, you should consult a cross-border accountant first.
In conclusion, the Canadian Revenue Agency (CRA) and Government do not recognize Limited Liability Companies in Canada. For this reason, Canadians cannot open them.
Americans, however, do have the option of extending their LLCs into Canada by registering them under provincial corporation laws. Depending on which province you wish to register, laws and rules may vary.