By Raz Toor, Lawyer and Founder of Falcon Law PC
Canada is often a natural first international market for a successful U.S. business.
The countries share customers, supply chains, language, banking relationships and a long commercial border. But from a legal perspective, expanding into Canada is not simply a matter of registering the U.S. company and beginning to sell.
The first decisions usually involve structure. Will the U.S. company operate directly in Canada? Will it create a Canadian subsidiary? Will it acquire an existing Canadian business? Will employees be hired locally? Will goods cross the border? Will U.S. executives physically work in Canada?
Those decisions affect corporate liability, tax filings, contracts, employment obligations, regulatory approvals and the practical ability to operate the Canadian business.
I’m Raz Toor, the founder of Falcon Law PC. We advise Canadian and international businesses on corporate structuring, acquisitions, commercial agreements and the legal issues that arise when businesses operate across borders.
Start With the Canadian Operating Structure
For many U.S. companies, the first major decision is whether to operate in Canada directly through the existing American company or create a separate Canadian subsidiary.
Neither approach is automatically correct.
A Canadian subsidiary creates a separate Canadian legal entity, usually owned by the U.S. parent. That can make Canadian contracting, banking, employment and local operations easier to organize while creating legal separation between the Canadian operating company and the U.S. parent.
The U.S. parent may still provide guarantees or otherwise become exposed to Canadian obligations depending on the arrangements, so the subsidiary should not be described as complete liability isolation. But it usually creates a much cleaner corporate boundary than simply operating the Canadian business through the American entity itself.
For broader assistance with Canadian corporate structures, see our legal services for entrepreneurs and business owners.
Operating Through the U.S. Company as a Canadian Branch
A U.S. company can sometimes operate directly in Canada rather than incorporating a Canadian subsidiary.
In that situation, the American corporation remains the operating entity and registers or obtains the required authority to carry on business in the relevant Canadian province.
For example, Ontario’s Extra-Provincial Corporations Act generally requires a foreign corporation carrying on business in Ontario to obtain the applicable extra-provincial licence.
The principal legal difference is that the U.S. corporation itself is carrying on the Canadian business. There is no separate Canadian subsidiary standing between the Canadian operation and the U.S. company.
That may be acceptable for a limited Canadian presence, but the tax consequences deserve careful review. A non-resident corporation carrying on business in Canada can have Canadian corporate tax filing obligations and can also become subject to Canada’s branch-tax regime, subject to treaty relief.
I would normally have cross-border tax advisers compare the branch and subsidiary alternatives before the structure is finalized.
Ontario or Federal Incorporation?
If the company decides to create a Canadian subsidiary, the next question is where to incorporate it.
A company expecting to operate principally in Ontario may choose an Ontario corporation. Another business may choose federal incorporation and then register the federal corporation in the provinces where it carries on business.
There are differences between the regimes that matter to U.S. owners.
One particularly practical distinction is director residency.
Ontario eliminated its Canadian-resident director requirement in 2021. That means a wholly U.S.-owned Ontario corporation can generally have U.S.-resident directors without appointing a Canadian resident merely to satisfy the Ontario corporate statute.
The federal Canada Business Corporations Act, by contrast, currently generally requires at least 25% of the directors to be resident Canadians. Where there are fewer than four directors, at least one director generally must be a resident Canadian, subject to the statutory rules and sector-specific exceptions.
For a U.S. owner that wants a one-person board consisting entirely of an American executive, that difference can make Ontario incorporation particularly relevant.
Can the U.S. Parent Own 100% of the Canadian Company?
Generally, yes.
A U.S. corporation can ordinarily own all of the shares of an Ontario or Canadian subsidiary, subject to any industry-specific foreign-ownership restrictions that apply to the particular business.
The Canadian subsidiary would then have its own Articles, directors, officers, share register, minute book, banking arrangements and contracts, while the U.S. company appears as the shareholder.
The relationship between the parent and subsidiary should also be considered carefully where money, intellectual property, management services, employees or other resources move between them.
Intercompany agreements and transfer-pricing considerations may become relevant, particularly as the Canadian operation grows.
The U.S. LLC Question
U.S. founders frequently ask for the Canadian equivalent of an LLC.
Canada does not have a direct nationwide equivalent to the conventional U.S. limited liability company.
An Ontario or federal business corporation is usually the more familiar Canadian corporate vehicle.
That does not mean the two are treated identically for tax purposes. In particular, the tax characterization of a U.S. LLC can create cross-border issues because Canada may not characterize the entity in the same manner as the United States.
Where a U.S. LLC will own the Canadian company or operate directly in Canada, I would have the cross-border tax structure confirmed before the legal entities are put in place.
The Investment Canada Act Can Apply Even When You Are Starting a New Business
U.S. companies are sometimes surprised to learn that Canadian foreign-investment legislation can apply even where they are not purchasing an existing Canadian company.
The Investment Canada Act applies to investments by non-Canadians involving the establishment of a new Canadian business as well as acquisitions of Canadian businesses.
For many ordinary new-business establishments, the requirement will be a notification rather than a pre-closing net-benefit review. The filing analysis nevertheless should not be overlooked simply because the Canadian entity is being created from scratch.
Acquisitions raise a separate analysis based on the nature and value of the Canadian business, the identity of the investor and potential national-security considerations.
Buying a Canadian Business Instead of Building One
Some U.S. businesses enter Canada more quickly by purchasing an existing Canadian company.
That can give the buyer an established workforce, customer base, contracts, equipment, licences and Canadian operating history from day one.
But it also means acquiring an existing legal history.
The buyer needs to understand the Canadian company’s debts, security registrations, taxes, contracts, employment arrangements, litigation, regulatory obligations and other liabilities before closing.
The acquisition can be structured as a share purchase or asset purchase depending on the transaction and tax advice.
For more information, see our Business Purchase & Sale legal services.
A Recent Cross-Border Acquisition We Worked On
In 2026, Falcon Law PC acted on a proposed approximately US$1.25 million acquisition of an Ontario transportation company by a U.S. buyer.
The Canadian business operated on both sides of the Canada-U.S. border, so the legal review extended well beyond the purchase price.
The transaction required consideration of the target’s fleet and equipment, secured debt and financing, employees and workers, regulatory matters, taxes, working capital, existing corporate arrangements and the transition of the Canadian business following closing.
That file is a good example of why “expanding into Canada” can mean very different things. For one U.S. company, the answer may be incorporating a new Ontario subsidiary. For another, acquiring an established Canadian operating business may be the more efficient route.
The example above has been anonymized and certain details have been generalized to protect client confidentiality.
Canadian Tax Registration Should Be Planned Early
Corporate registration and tax registration are separate issues.
A Canadian subsidiary will generally obtain a Canadian business number and may require CRA program accounts for corporate income tax, GST/HST and payroll depending on its operations.
A U.S. company operating directly in Canada can also have Canadian tax registration and filing obligations even though it remains incorporated in the United States.
CRA expressly requires a non-resident corporation carrying on business in Canada to file a Canadian T2 corporate tax return, even where the corporation ultimately claims that its profits are exempt from Canadian tax under a treaty.
The tax work itself should be handled by the company’s accountant or cross-border tax adviser, but the corporate structure should be established with those consequences in mind.
GST/HST Can Apply Before a Business Has a Traditional Canadian Office
U.S. companies should also avoid assuming that Canadian sales tax becomes relevant only after leasing office space in Canada.
Whether a non-resident is carrying on business in Canada for GST/HST purposes is fact-specific. CRA considers matters such as where employees are located, where services are performed, where contracts are made, where inventory is located and where the business maintains an office or other presence.
Separate rules can also apply to non-resident digital businesses selling into Canada.
An e-commerce, SaaS or online-services business can therefore have Canadian tax and consumer-facing obligations even with a relatively light physical presence.
For online businesses entering the Canadian market, see our E-Commerce & Online Business legal services.
Importing Physical Products Creates Another Layer
Where the U.S. company will ship inventory, equipment or other commercial goods into Canada, customs planning becomes part of the expansion.
Commercial importers require the appropriate Canadian business number and import-export program account. The Canada Border Services Agency now administers commercial importing through its CARM system.
The business should also determine who will act as importer of record, how goods will be classified, what duties or surtaxes apply, whether the goods qualify for preferential tariff treatment, and who is responsible for customs costs under customer or distribution contracts.
These points become particularly important where the U.S. company intends to quote an all-inclusive Canadian price rather than having customers unexpectedly responsible for brokerage, duty or import charges at delivery.
Canadian Contracts Should Be Reviewed Rather Than Simply Reused
A U.S. contract is not automatically unsuitable for Canada, but I would not simply change “United States” to “Canada” throughout the document.
Canadian consumer law, privacy requirements, employment law, sales taxes, governing-law provisions and regulatory terminology can differ.
If the Canadian subsidiary will contract in its own name, the contracts should also correctly identify that company rather than the U.S. parent.
The same issue arises with intellectual property licences and intercompany agreements. If the U.S. parent owns the brand or software used by the Canadian subsidiary, the legal relationship should be documented where appropriate instead of assuming the subsidiary automatically owns or can use all parent-company assets without restriction.
Hiring Employees in Canada
A U.S. employer entering Canada should also account for the fact that Canadian employment law is primarily provincial.
An Ontario employee will be subject to Ontario employment standards and other applicable provincial laws even if the employer’s head office and HR department are in the United States.
U.S. offer letters, “at-will” employment concepts and termination provisions should not simply be imported into Ontario employment contracts.
The Canadian company may also need a payroll account and must consider source deductions and other employer obligations.
Sending U.S. Employees to Canada Is an Immigration Question
Owning a Canadian corporation does not itself give a U.S. founder or employee the right to work in Canada.
A person can own shares or act as an investor without necessarily having authorization to perform day-to-day work in Canada.
If executives, managers, specialists or other personnel will physically work in Canada, the immigration analysis should happen alongside the corporate expansion.
A short business visit and actually entering the Canadian labour market are not the same thing.
For assistance with Canadian immigration matters, see our Canadian Immigration & Citizenship legal services.
Leasing Canadian Premises
A physical Canadian location creates another important commercial commitment.
Before a newly established subsidiary signs a long-term lease, the U.S. parent should understand whether the landlord is requiring a parent-company guarantee, security deposit or other credit support.
A subsidiary intended to isolate Canadian liabilities provides considerably less practical separation if the U.S. parent signs an unlimited guarantee of the lease.
The lease should also accommodate the actual intended use, signage, buildout, assignment rights and any regulatory approvals needed before the Canadian location opens.
For those transactions, see our Ontario Commercial Lease legal services.
National Expansion Is Not Always One Set of Rules
A company should also be careful with the phrase “Canadian expansion.”
Canada is one country, but important business laws operate provincially.
A company expanding only into Ontario may have a relatively focused legal setup. A business selling, employing people, franchising or maintaining establishments across several provinces can face multiple provincial registrations and local requirements.
Quebec in particular can require separate analysis because of its civil-law system and French-language requirements.
The initial structure should therefore reflect where the business actually expects to operate rather than assuming that forming one Canadian corporation completes the national rollout.
The Structure Should Match the Expansion Plan
I would approach a U.S.-to-Canada expansion by first understanding what the company actually intends to do during the first year.
A software company selling subscriptions remotely presents a very different legal profile from a manufacturer importing inventory into an Ontario warehouse. A U.S. franchisor entering Canada has different issues from a company acquiring an established transportation business. A consulting firm sending U.S. employees to Toronto has different issues again.
The Canadian entity should follow the business model, not the other way around.
How Falcon Law PC Can Help
Falcon Law PC assists U.S. and international companies with the Canadian legal side of market entry.
That work can include advising on Canadian subsidiary and branch structures, Ontario incorporation, extra-provincial registration, corporate governance, Canadian commercial agreements, intercompany arrangements, business acquisitions, commercial leases and coordination with Canadian tax, immigration and other professional advisers where required.
We can also assist as the Canadian business grows with shareholder matters, corporate changes, contracts and transactions.
For broader corporate assistance, visit our Lawyer for Entrepreneurs & Business Owners page.
Before Entering the Canadian Market
The most important question is not simply, “How do we register our U.S. company in Canada?”
It is how the Canadian operation should fit into the company’s broader business.
The answer may be an Ontario subsidiary, a federal subsidiary, a Canadian branch or the acquisition of an existing business. From there, tax registration, contracts, employees, immigration, importing and regulatory compliance can be built around that structure.
Getting those decisions right before signing leases, hiring employees or entering Canadian customer contracts is usually much easier than reorganizing the business after the Canadian operation is already active.
This article is intended for general informational purposes only and does not constitute Canadian or U.S. legal, tax, accounting, customs, immigration or financial advice. Cross-border structures should be reviewed based on the particular ownership, industry, jurisdictions and activities involved.