In the spring of this year, the British Columbia legislature passed amendments to its Business Corporations Act to permit the incorporation of unlimited liability companies (“ULCs”) in B.C. The amendments are expected to soon become effective.
ULCs have long existed in Nova Scotia, where they gained prominence commencing in the mid 1990s in connection with cross-border U.S. tax planning. B.C. joins Alberta, which enacted legislation permitting ULCs in 2005, as an additional province where ULCs may be established.
For Canadian tax purposes, ULCs are treated as taxable Canadian corporations. Under “check the box” rules in the U.S. Internal Revenue Code, however, ULCs may be treated either as a disregarded entity (if it has a single owner) or as a partnership (if it has multiple owners). This treatment provides certain tax benefits for U.S. shareholders.
Any business contemplating operating as a ULC should obtain U.S. tax advice as well as Canadian legal counsel to assist in determining under which provincial statute to operate. The following table sets out some of key considerations applicable to the decision as to whether to establish a ULC in B.C., Alberta or Nova Scotia.