Navigating Residency Requirements for Provincial and Canadian Corporations

Written by Sukhman Sandhu

Sukhman Sandhu is the Founder & Managing Director of Sukh Law. Sukhman's practice focuses upon complex real estate and commercial law transactions and related litigation. Licensed to practice law in the Province of Ontario, Sukhman currently represents individuals, small businesses and large institutions and maintains a great track record of obtaining successful results.

April 25, 2024

Understanding the intricacies of corporate residency requirements is essential for any entrepreneur or investor looking to establish or expand their business operations in Canada. This is particularly relevant when considering the differences in regulations between provincial (Ontario) and federal (Canadian) corporations. As a business and corporate lawyer, I have navigated these waters numerous times, assisting clients from various international backgrounds in aligning their corporate structures with Canadian laws.

The Evolution of Director Residency Requirements in Ontario

Historically, Ontario required that at least 25% of the directors of any corporation registered under the Ontario Business Corporations Act (OBCA) be resident Canadians. This was seen as a way to ensure that Canadian interests were adequately represented at the highest levels of corporate decision-making. However, this requirement was removed as of July 1, 2021, by the Ontario Better for People, Smarter for Business Act 2020 (Bill 213). This legislative change signifies a significant shift towards globalizing Ontario’s corporate landscape, allowing more flexibility for foreign participation in Ontario-based corporations.

Implications for Foreign Directors and Shareholders in Ontario

With the elimination of the Canadian residency requirement for directors, Ontario has opened its doors wider to foreign directors, potentially enhancing the province’s appeal as a hub for international business. This change does not affect the status of foreign shareholders, who have always been permitted to own shares in Ontario corporations without any restrictions based on citizenship or residency. However, it’s crucial to note that certain sectors, such as broadcasting and telecommunications, may have specific regulations that limit foreign ownership and participation.

Residency Requirements for Directors under the Canada Business Corporations Act

For corporations incorporated under the federal Canada Business Corporations Act (CBCA), the landscape is slightly different. The CBCA still mandates that at least 25% of directors be resident Canadians. This requirement is intended to maintain a Canadian presence in the governance of federally incorporated companies, reflecting a balance between opening up to foreign investment and retaining Canadian control and influence.

Foreign Shareholder Regulations for Federal Corporations

Similar to Ontario, there are no restrictions on foreign shareholders owning shares in federally incorporated companies. This policy facilitates foreign investment and reflects Canada’s open-market policy. However, federally incorporated companies are subject to the transparency requirement to file information on individuals with significant control (ISC). This measure aims to enhance corporate transparency and combat financial crimes like money laundering and tax evasion.

Tax Considerations and Compliance

Both foreign directors and shareholders must be cognizant of the tax implications of their corporate roles in Canada. Non-resident shareholders, for example, may face different tax treatments compared to Canadian residents. It is advisable to seek professional tax advice to navigate these complexities and ensure compliance with Canadian tax laws while optimizing tax liabilities.

From my perspective, the recent legislative changes, particularly in Ontario, reflect a strategic move to attract more foreign investment and talent, making the province a more competitive player on the global stage. As these laws continue to evolve, staying informed and compliant is paramount. The flexibility now offered by Ontario, juxtaposed with the more traditional approach of the federal system, provides a diverse array of options for structuring businesses in Canada.

If you require legal advice or representation with your real estate property purchase or refinancing, or have questions about residential or commercial real estate law in general, contact us at Sukh Law.

Sukh Law publishes articles for information purposes only and is not intended to constitute legal advice.

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