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What is the difference between corporations in the US and Canada

Updated: Jan 5, 2021

The longest standing type of business entity in the US and Canada is the corporation. A corporation is a separate legal entity or legal "person" for legal and tax purposes.

This means that a corporation can enter into contracts, own property, as well as sue and be sued. Profits earned in a corporation are taxed in the corporation as corporate income tax and then taxed again as personal income when the shareholders receive the profits from the company as dividends. Depending on the jurisdiction where the corporation was formed, and which states it transacts business in, corporate income tax may be imposed both at the federal level, and at the state level. Likewise in Canada, the profits of a corporation can be taxed at the federal and provincial level.

Similar to Canada, the owners of a US formed corporation are called shareholders (or stockholders). The voting shareholders elect the directors of the company, who are responsible for the big picture decision making of the company. The directors then appoint officers of the company, The officers are responsible for managing the day to day operations of the company.

In the US, the directors have a fiduciary duty to the shareholders of the corporation, which is generally interpreted to mean a duty to make business decisions that maximize profits for the shareholders’ benefit.

Whereas in Canada, the directors owe a fiduciary duty to the corporation which requires the directors to consider the best interests of the corporation when making corporate decisions. The fiduciary duty is not directly owed to the shareholders, however it is often the case that maximizing profits is in the best interests of the corporation.

In both the US and Canada, shareholders have limited personal liability with respect to the corporation’s liabilities. This means that a shareholder’s liability is limited to their equity in the corporation (or the amount of money paid contributed to the company). The corporate veil shields the individual owners ( shareholders) from personal liability. Generally directors are not liable for the company's liabilities either, although there are a few exceptions where directors can be held personally liable for corporate obligations.

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** Disclaimer: This article contains only general legal information and is not intended to replace legal advice specific to the reader’s situation. We strongly encourage you to seek legal advice from your lawyer before acting based on any information given here.


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