Alberta now offers the benefits of unlimited liability corporations to U.S. companies doing business in Canada.
On May 17, 2005, the Business Corporations Act (Alberta) was amended to allow for the incorporation of unlimited liability corporations (ULCs). Prior to those amendments, ULCs in Canada could only be incorporated under the Companies Act (Nova Scotia).
Benefits of ULCs
For Canadian tax purposes, a ULC and its shareholders are taxed in the same manner as a traditional corporation and its shareholders. However, for U.S. tax purposes, a ULC can be treated as a "disregarded entity" if it has only one shareholder or as a partnership if it has two or more shareholders; alternatively, a company may elect to treat the ULC as a corporation for U.S. tax purposes. This flexibility can offer significant benefits for U.S. companies doing business in Canada and can be advantageous in U.S. tax planning in various circumstances, including cross-border share and asset acquisitions. Although the IRS has not yet publicly confirmed that ULCs formed under the Alberta Act would be treated in the same manner for U.S. tax purposes as those formed under the Nova Scotia Act, that should be the result based on the applicable U.S. regulation.
Differences between Alberta and Nova Scotia ULCs
In contrast to the Nova Scotia Act, the Alberta Act offers the conveniences of a "modern" business corporations statute. The following are some of the differences between ULCs incorporated under the Alberta Act and the Nova Scotia Act:
The Alberta Act allows for timely short-form horizontal and vertical amalgamations and conversions of limited liability corporations to ULCs, all without court approval.
Government fees for the incorporation of ULCs under the Alberta Act are expected to be $100 with no annual fees or special taxes. Nova Scotia imposes special taxes on ULCs, which amount to $6,000 on incorporation and $2,000 annually.
The Alberta Act requires one-quarter of the directors of a corporation to be Canadian residents while the Nova Scotia Act does not impose any Canadian residency requirements.
The liability of shareholders for any liability, act or default of ULCs under the Alberta Act is unlimited, joint and several, whereas shareholders of ULCs incorporated under the Nova Scotia Act are only liable when the ULC is wound up or liquidated with insufficient assets to satisfy its obligations. However, the additional shareholder liability for ULCs incorporated under the Alberta Act may be of little practical significance, as the direct owner of a ULC is often a single purpose traditional corporation (or limited liability partnership).
Dov Begun Dov is a partner in Osler, Hoskin & Harcourt LLP's Tax Department in the Toronto office, and specializes in the areas of the taxation of mergers and acquisitions and corporate reorganizations, the taxation of high-technology transactions and cyber taxation. Colin Berryman is an associate in the firm's Toronto office and a member of the Business Law Department. Nancy Diep is an associate in the Tax Department of the firm's Calgary office. Pierre Magnan Pierre is a senior associate also based in Osler's Calgary office, where he advises leading Canadian and U.S. enterprises on mergers and acquisitions, securities and corporate governance matters.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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