The decision of whether you should incorporate your business in Canada can be a rather confusing process. This determination requires a consideration of the type and nature of the business you conduct. The decision to incorporate can be even more confusing if you run an ecommerce business or website that has significant contacts with Canada. Regardless of what country your principal place of business is in, incorporation Canada may greatly increase the possibility of being brought into Canadian courts because of litigation that arises out of your business’s connections in Canada.
1) Incorporation Provides Canadian Courts With Personal Jurisdiction Over Your Ecommerce Business
Incorporating your business in Canada provides Canadian courts with personal jurisdiction over your business and it’s directors. Personal jurisdiction is essentially the right of a court to compel your presence in court for actions brought against you and/or your company. By incorporation in Canada the Canadian court system will have specific personal jurisdiction to hear suits that are brought against your business by people in Canada. In contrast, if you are not incorporated in Canada it will be way more difficult for the court to call you into court, because they will have to find a alternative ground for exercising jurisdiction over your business. Essentially, incorporation in Canada, gives the Canadian courts the right to hear any cases brought against your business. While if you are unincorporated the court does not have personal jurisdiction and you can only be called in for specific issues arising out of specific business contacts in Canada.
2) Whether You Should Avoid Incorporation
The consideration of whether it’s a good business decision to incorporate in Canada requires a evaluation of what sort of business your run, as well as whether you are willing and able to defend suits in Canada. There are a variety of ecommerce business and websites that sell everything from insurance, legal advice or web apps. If you sell highly dangerous goods, or give advice that people rely on to make important monetary decisions, simple disclaimers might not be enough to shield you from liability. If you are incorporated in Canada, those Canadians that allege your goods or services have injured them will have a stronger case for their claims to be heard in Canadian courts. Though a court may take into consideration that you personally and your business are not located in Canada, this consideration could be overcome by the fact that your business is incorporated in Canada and thus you have expressly consented to Canadian courts exercising jurisdiction over your business.
Incorporation in Canada will give your business all of the benefits and protections provided to corporations under Canadian law. However, incorporation can greatly increase the ability of Canadian courts to exercise jurisdiction over your business, and could easily result in you being required to defend suit from a disgruntled client or purchaser in a Canadian court. This could be especially undesirable if you do not live in Canada or the western hemisphere. However, incorporation alone does not mean you will unequivocally be forced to travel to Canada to defend suit. Instead if Canada is such an extremely inconvenient forum and the person suing is not a Canadian resident, you might still be prevented from being brought in Canadian courts even if incorporated under Canadian law. However, if your business is such that suits and liability easily arise, it might be better not to incorporate in Canada so that specific jurisdiction cannot be easily exercised over your business.
Melissa, a mom to three little ones (ages 7, 3 and 1), blogs at both Mom’s Plans where she writes about living a fulfilling life on less and paying down debt, and Fiscal Phoenix where she writes about rising from the ashes of your financial mistakes.