Using Best Practice Entity Management to Navigate Business Law in Canada

Kerie Kerstetter
4 min read

Canada regularly appears on Forbes’ list of the best countries for business. No wonder then that it’s a popular place to launch a business venture, whether as a Canadian company or an overseas investor.

It remains a lively market for M&A, despite COVID-19; EY’s Canadian Global Capital Confidence Barometer published in June this year found that62% of respondents still intended to pursue deals in the next 12 months.

But the Canadian business landscape is not without its challenges. 

Via a combination of federal and provincial laws, the country takes a robust stance on corporate governance and regulatory compliance. What legislation do you need to be aware of if you operate in Canada? How can you ensure your approach to your legal entities is on-point, and doesn’t expose you to potential regulatory or legislative failings? 

The Role of Entity Management in Governance and Compliance

Good governance and regulatory compliance provide the foundation for any well-run business. When you have a number of legal entities within your organization, the twin challenges of compliance and governance are compounded – and rigorous entity management is essential.

Entity management is the process ofoverseeing the activity of your subsidiary businesses and legal entities. Effective entity management demands robust data and a comprehensive view of your entire business operations. Arobust approach will help you to measure, manage and evidence regulatory compliance, by giving you reliable data on which to base your strategy. 

As well as supporting your governance program, the rigor generated by effective entity management has other secondary benefits – helping to facilitate business growth, for instance.

Managing Legal Entities in Canada

Managing your legal entity structure comprises both the incorporation of your business and its ongoing management. 

The most prevalent business entity in Canada is a corporation with share capital.Partnerships, whether ‘general’ or ‘limited’ – differentiated by the level of liability the partners have for the partnership – are another common business structure; joint ventures and syndicates are also seen.

When it comes to operating in Canada, corporations are incorporated under either provincial or federal law. Those wishing todo business in more than one province may choose to incorporate under federal law, as this process allows the organization to operate in every Canadian province without being licensed by each one.

Operating as a Foreign Investor in Canada

As we mentioned earlier, Canada is a popular location for international businesses, as well as home-grown ones. 

Foreign-owned organizations may conduct business in Canada provided they comply with the Investment Canada Act and meet provincial registration and licensing requirements.More stringent rules apply to businesses that fall within specific categories related to Canada’s cultural heritage or national identity.

The complexities of the Act – law firm Blake, Cassels & Graydon LLP notes that ‘The rules relating to acquisition of control and whether an investor is a “Canadian” are complex and comprehensive’ – make it imperative that if you’re an overseas investor, you have a firm grip on your Canadian operations and ensure they are set up compliantly. 

Again, best practice entity management is a must here; you need confidence that you understand the structure of all your entities, and that they are being managed in a way that complies with provincial and federal requirements.

Competition Law

This is another area of Canadian law where a full picture of your organization’s entities is essential. The Competition Act prohibits any agreements between organizations that unduly prevent, reduce or limit competition; these would comprise criminal activity. Other non-criminal conduct is also covered by the Act, including activity around share-dealing and market abuse.

Corporations need to manage their entities not only to prevent such issues arising, but to enable them to evidence, in the event of any failings, that a breach is one-off rather than a symptom of something more endemic. Effective entity and subsidiary governanceis essential here too.


Overseas companies looking to operate in Canada also need to be aware of the tax obligations they will fall under. US entities, for instance, can operate in Canada under the Canada-U.S. Tax Convention, subject to some caveats, which means that they are not subject to Canadian tax on their business profits. 

Understanding these rules and others like them, and ensuring your organization is structured to take advantage of them – without failing to fulfil any requirements – is essential. Similarly, your HR processes need to be set up to ensure employees, Canadian and non-Canadian, are paying the requisite income tax.

How Best Practice Entity Management Can Help 

There are, then, a number of considerations for any firm wanting to operate in Canada, whether as a Canadian-based organization or an overseas investor.  It’s vital that these are properly thought through before any decisions about Canadian operations, their structures or locations are taken.

And as discussed, unimpeachable entity management is an essential ingredient for any organization thinking about setting up in Canada. A sub-optimal approach won’t cut it; only robust entity data management will give you the reliable information you need to have confidence in your compliance strategy.

Of course, many elements of entity management remain consistent wherever you operate. That’s why organizations worldwide are rethinking their strategy,turning away from low-tech approaches and embracing the benefits that entity management software can deliver. If this is something that would benefit your organization, get in touch toschedule a demoand see how Diligent Entities can enhance your approach to legal entity management.

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Kerie Kerstetter
Kerie Kerstetter is the former Senior Director of Content Strategy for Diligent and the Next Gen Board Leaders.