Canadian unlimited liability corporations in cross-border Transactions

At Steinbergs LLP, we provide sophisticated counsel to various business interests, from small owner-operated businesses and their owners to large multinational corporations including private and public corporations, limited partnerships, private equity firms, and real estate syndications - in both the domestic and cross-border context. We provide creative, tax-efficient, and cost-effective solutions to tax and business law issues and corporate structures.

?This communique highlights the importance of Canadian ULCs in U.S.–Canada cross-border transactions.

?ULCs are a strange feature of Canadian corporate law; they are corporations with unlimited liability. At one time, Nova Scotia was the only jurisdiction in Canada that had these entities, and they were modeled after similar entities existing under UK corporate law. However, some years ago Alberta and British Columbia jumped on the ULC bandwagon.

?From a Canadian income tax perspective, ULCs are taxed in the same way as “regular” Canadian corporations. The benefit of using ULCs results from the arcane world of the U.S. Internal Revenue Code, and the rules that apply to classifying foreign entities. Under what is colloquially referred to as the “check the box” rules, Canadian ULCs can be treated as “disregarded entities” (if there is only one shareholder) or partnerships (if there are two or more shareholders) for U.S. tax purposes.

This characterization by the U.S. Internal Revenue Code of ULCs is advantageous in many business structures.? One notable benefit of the treatment of Canadian ULCs by the U.S tax authorities is in the U.S.- Canada cross-border context and transactions.? Canadian ULCs can allow tax credits to be claimed directly in the US for Canadian taxes, as well as the ability to amortize “goodwill” for U.S. income tax purposes. Using Canadian ULCs can also allow U.S interests to carry out tax-free rollover in the U.S. to Canadian corporations.

?About the Author

?Marc's practice focuses on tax law, business law and estate planning. He has extensive experience advising on the purchase, sale and structuring of domestic and international businesses, debt and equity financings, private placements, private equity transactions, management buyouts, corporate reorganizations, commercial and business arrangements including shareholders' agreements, partnership agreements, equity participations plans and succession and estate planning.

?About Steinbergs LLP

?Steinbergs LLP is a full service, boutique law firm with offices in Toronto. We offer our clients a wide range of services and expertise in all areas of law including corporate/ commercial, mergers & acquisitions, tax, estate planning and administration, banking and financing, real estate, commercial litigation, estate litigation, employment, and securities law. We provide sophisticated counsel to various business interests, from small owner-operated businesses and their owners to large multinational corporations including private and public corporations, limited partnerships, private equity firms and real estate syndications-in both domestic and cross- border transactions.