Unlimited Liability Company (ULC) in Canada: Nova Scotia, Alberta and BC

A ULC in Canada is an unlimited liability company: a corporation whose shareholders can be personally liable for its debts. Only three provinces allow them: Nova Scotia, Alberta and British Columbia. ULCs are used mainly by US investors, because a ULC can be treated as a flow-through entity for US tax purposes while remaining a Canadian corporation for Canadian tax.

A ULC is a specialized tool, not a better version of an ordinary corporation. Nova Scotia's own registry describes the unlimited company as one most often used in complex international transactions. This guide explains how ULCs work in each province, what they cost to set up and maintain, and the issues to raise with your tax advisor and lawyer.

What is an unlimited liability company?

An ordinary Canadian corporation gives its shareholders limited liability: they can lose what they invested, but creditors can't usually pursue them personally. A ULC removes that shield. Depending on the province, shareholders can be made to pay the company's debts when it is wound up or dissolved, or for any of its liabilities.

In every other respect a ULC is a corporation. It has directors, shares, articles and a separate legal identity. It can own property, sign contracts and employ people, and it files Canadian corporate tax returns.

Why do US investors use a ULC in Canada?

The main reason is tax classification. Under the US "check-the-box" entity rules, a Canadian ULC can generally elect to be disregarded or treated as a partnership for US tax purposes. An ordinary Canadian corporation is treated as a corporation. That lets a US parent or US individual owner report the ULC's income and losses directly, which can help with foreign tax credits and with using losses.

In Canada, the ULC is still a taxable Canadian corporation. This mismatch, a corporation in one country and a flow-through in the other, is the whole point. It also creates complications under the Canada–US tax treaty, covered below.

Whether a ULC suits your situation depends on your US and Canadian tax position. That analysis belongs with a cross-border tax advisor before you incorporate, not after.

Which provinces allow ULCs?

Only three. Ontario corporations and federal CBCA corporations can't be ULCs.

For comparison, an ordinary Nova Scotia limited company costs $200 to incorporate and $118.35 a year to renew, and an ordinary BC company costs $350. The ULC premium is significant, particularly Nova Scotia's annual tax.

How do Nova Scotia, Alberta and BC ULCs differ?

Nova Scotia unlimited company

Incorporating a Nova Scotia unlimited company takes a Memorandum and Articles of Association, a statutory declaration, a notice of directors and officers, an appointment of recognized agent and a notice of registered office. The name must be reserved and approved first.

The cost is the main drawback: $1,144.90 to incorporate and $1,144.90 every year after. Nova Scotia's registry states that shareholders' liability for the company's debts is unlimited for up to one year after the company is dissolved. Read our Nova Scotia incorporation guide for the general process, or see Nova Scotia incorporation.

Alberta unlimited liability corporation

Alberta's ULC rules are in sections 15.1 to 15.9 of its Business Corporations Act. The articles must state that each shareholder's liability for any liability, act or default of the corporation is unlimited in extent and joint and several in nature. That is the broadest liability of the three provinces, because it isn't tied to a winding up.

Former shareholders get some protection. A former shareholder is liable only for liabilities that existed when they left, and only if a claim is brought within two years after they stopped being a shareholder. Alberta filings go through a registry agent, who charges a service fee on top of the government fee. See Alberta incorporation.

British Columbia unlimited liability company

A BC company becomes a ULC by including a prescribed statement in its notice of articles: that shareholders are jointly and severally liable for the company's debts to the extent set out in section 51.3. The same statement must appear on each share certificate. BC charges $1,000 to incorporate a ULC through Corporate Online, compared with $350 for a limited company.

Under section 51.3, shareholders and former shareholders must contribute to the company's debts if it liquidates, and are liable to creditors after it dissolves. Former shareholders are liable only if current shareholders can't pay, not for debts arising after they left, and not in a liquidation that starts a year or more after they left. See BC incorporation.

What is the Canada–US tax treaty issue with ULCs?

Protocols to the Canada–US tax treaty, signed September 21, 2007, added Article IV(7). Paragraph (b) can deny treaty benefits on an amount a US resident receives from a Canadian entity that the US treats as fiscally transparent, where the US tax treatment differs from what it would be if the entity weren't transparent.

A ULC fits that description. In practice the rule can deny the reduced treaty withholding rates on certain dividends, interest and other payments from a ULC to its US owners, leaving the higher domestic Canadian withholding rate. Planning techniques exist to manage this, and the CRA has commented on several. The details change and depend on the facts, so this is a question for a cross-border tax advisor, not a template.

What are the risks of a ULC?

• Personal exposure. Shareholders can lose more than their investment. Many US investors hold ULC shares through a limited-liability entity of their own, which a lawyer should set up.
• Higher cost. Government fees are much higher than for an ordinary corporation, especially in Nova Scotia.
• Tax complexity. The treaty rule above, and the need to keep US and Canadian filings consistent.
• Not useful for Canadians alone. A Canadian-owned business usually gains nothing from a ULC and takes on unlimited liability.

Can you convert a corporation to a ULC, or a ULC back?

Yes, within limits. Each province has rules on converting and continuing ULCs.

• BC, limited company to ULC: alter the notice of articles to add the ULC statement and change the name. All shareholders must approve by unanimous resolution, voting or not, and return their share certificates for endorsement. Shareholders then become liable for debts arising before and after the change.
• BC, ULC to limited company: alter the notice of articles to remove the statement and change the name. Section 51.3 still governs liability for the ULC period.
• Alberta: a limited corporation can amend its articles to become a ULC, and a ULC can convert to a limited corporation. Shareholders of the former ULC stay liable without limit for liabilities that existed at conversion.
• Continuance into BC: a foreign corporation can continue into BC as a ULC only if it is an Alberta ULC, a Nova Scotia unlimited company or a prescribed type of corporation.

An existing Ontario or federal corporation that wants ULC status would need to continue into one of the three provinces first. Continuances have tax consequences, so get advice before you start. For general jurisdiction choices, see our federal vs provincial incorporation guide and our guide to incorporating as a non-resident.

How do you set up a ULC?

1. Get cross-border tax advice on whether a ULC fits and how the treaty rule affects you.
2. Choose the province: Nova Scotia, Alberta or BC, based on cost and liability model.
3. Decide who holds the shares, often a US limited-liability entity.
4. Reserve the name, or use a number name where allowed.
5. Prepare the constating documents with the required ULC liability statement.
6. Appoint a registered office, and in Nova Scotia a recognized agent.
7. File and pay the ULC fees, then organize the corporation and its minute book.

Our team is lawyer-supervised and can incorporate in Nova Scotia, Alberta or BC, prepare the minute book and by-laws, and set up the share structure.