Published July 2026 · By Sophia Li, Principal Lawyer · Yu Sheng Law Firm

If you are setting up a business in Canada as a foreign founder or investor, two early decisions shape everything that follows: where to incorporate, and what the owners agree among themselves before there is anything to argue about.

Ontario or federal: the director residency question

This is the point that matters most to founders who live outside Canada.

• Ontario (OBCA). Ontario removed its Canadian resident director requirement in 2021. An Ontario corporation can now have a board made up entirely of non-residents.
• Federal (CBCA). A federal corporation must still have at least 25 percent of its directors be resident Canadians. Where there are fewer than four directors, at least one must be a resident Canadian.

Federal incorporation has its own advantages, including name protection across Canada. The right choice depends on where you will operate, who your directors will be, and how you plan to expand. Note also that a corporation operating in a province other than where it was incorporated generally needs extra-provincial registration there.

The shareholder agreement: written while everyone still agrees

Incorporation creates the company. It does not decide what happens when the owners disagree, when one wants out, when someone dies, or when a founder stops contributing. That is the job of a shareholder agreement, and the time to write it is at the beginning.

A well drafted agreement typically addresses:

• Control and decision-making. Which decisions need unanimity or a special majority, rather than a simple board vote.
• Share transfer restrictions. Rights of first refusal, so shares cannot be sold to an outsider without the others having a chance.
• Drag-along and tag-along rights. Protecting both the majority selling the whole company and the minority not being left behind.
• Buy-sell and valuation. A clear mechanism, agreed in advance, for pricing a departing owner's shares. Disputes about value are the most common and most expensive shareholder fight.
• Death, disability and departure. What happens to the shares, and whether insurance funds the buyout.
• Deadlock resolution. Particularly important in a fifty fifty company, which without a mechanism can simply freeze.
• Non-competition and confidentiality, drafted to be enforceable rather than aspirational.

Ongoing obligations that founders forget

• Maintaining a proper minute book and corporate records, including registers of shareholders, directors and, where applicable, individuals with significant control.
• Filing annual returns and keeping registered office and director information current.
• Documenting decisions by resolution rather than by conversation.

These matter far more than they seem. A buyer, a bank or a court will ask for the minute book, and a corporation whose records were never kept properly is difficult and expensive to clean up later.

Frequently asked questions

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