There is no LLC in Canada. The limited liability company is a creature of United States state law, and no Canadian statute, federal or provincial, creates a business entity by that name. Anyone searching for how to form an LLC in Canada is usually looking for one of two things: protection from the debts of the business, or a simple structure for running it. Canada offers both, through different forms: the corporation, the partnership in its general, limited and limited liability versions, and the sole proprietorship.
This guide explains what an LLC is, why it has no direct Canadian counterpart, how the Canadian structures compare feature by feature, and what the Canada Revenue Agency (CRA) has said about how a US LLC is classified for Canadian tax purposes.
What an LLC is, and why there is no LLC in Canada
In the United States, an LLC is formed under the law of a particular state. It combines two features that Canadian law keeps in separate structures: its owners (called members) are generally not personally liable for the company's debts, and for US federal tax purposes it can often be treated as a pass-through entity, so that profits are taxed in the members' hands rather than at the company level.
Canadian business law never adopted that hybrid. Limited liability for business owners comes mainly from incorporation, under the Canada Business Corporations Act or a provincial statute such as Ontario's Business Corporations Act. Flow-through taxation comes mainly from partnerships, which are not taxed as separate entities. A Canadian business can have one feature or the other through a single structure, but no single Canadian form is designed to deliver both the way a US LLC does.
So when a Canadian bank, client or software platform refers to an LLC, it is either speaking loosely about a corporation or referring to the US entity itself.
The Canadian equivalents of an LLC
Each Canadian structure answers part of what an LLC offers. The CRA describes the basic forms as follows.
- Corporation: the CRA describes a corporation as a separate legal entity that can enter into contracts and own property in its own name, separately and distinctly from its owners. Shareholders have limited liability, which means they are not responsible for the corporation's debts.
- Sole proprietorship: an unincorporated business owned by one individual, which the CRA calls the simplest kind of business structure. The owner assumes all the risks of the business, and those risks extend to personal property and assets.
- Partnership: an association or relationship between two or more individuals, corporations, trusts or partnerships that join together to carry on a trade or business. The CRA notes that a simple verbal agreement is enough to form one.
- Limited partnership: a partnership with at least one general partner, who is liable for the debts of the firm, and one or more limited partners, whose liability is generally limited to what they contribute or agree to contribute.
- Limited liability partnership (LLP): in Ontario, a form available only to professionals whose governing legislation allows them to practise through an LLP, such as lawyers and accountants.
For a business owner who wants what an LLC is best known for, a liability shield around the business, the Canadian structure that provides it is the corporation.
LLC vs Canadian business structures: a comparison
The table below compares the main features of a US LLC with the Canadian structures that come closest. It is a general overview; the details depend on the governing statute and on the facts of each business.
| Feature | US LLC | Canadian corporation | Partnership (general) | Limited partnership | Sole proprietorship |
|---|---|---|---|---|---|
| Available in Canada | No | Yes, federally or provincially | Yes | Yes | Yes |
| Separate legal entity | Yes, under US state law | Yes | No | No | No |
| Owners' liability for business debts | Generally limited | Shareholders generally not liable | Partners liable | General partner liable; limited partners generally limited to their contribution | Owner fully liable, including personal assets |
| How profits are taxed in Canada | CRA position: classified as a corporation (see below) | Corporation files its own T2 return | No partnership return of income; each partner reports a share | Each partner reports a share | Owner reports net business income on a personal T1 return |
| Formation | Filed with a US state | Articles of incorporation filed federally or provincially | Can be formed by agreement, including a verbal one | Registered under provincial limited partnership legislation | No filing needed if operating under the owner's own name |
The corporation: the closest Canadian match
A Canadian corporation can be formed federally, under the Canada Business Corporations Act, or under the corporate statute of a province or territory. The guide to federal vs provincial incorporation sets out how the two routes differ, including name protection and where the corporation can operate under its name.
Unlike an LLC, a corporation is taxed as its own taxpayer. The CRA states that a corporation has to file a T2 Corporation Income Tax Return no later than six months after the end of every tax year, even if it does not owe tax. Owners are paid through salary, dividends or both, and those amounts are then taxed in their own hands. The rates that apply to corporate income are covered in the guide to the corporate tax rate in Canada.
Some owners add a second corporation to hold investments or shares of an operating company. The holding company guide explains how that structure works.
Canadian-controlled private corporations (CCPCs)
Many small Canadian corporations are Canadian-controlled private corporations, or CCPCs, a tax category that affects how certain calculations on the corporation's return are made. According to the CRA, a corporation is a CCPC if, at the end of the tax year, it meets all of the following conditions, among others:
- It is a private corporation.
- It was resident in Canada and was either incorporated in Canada or resident in Canada from June 18, 1971, to the end of the tax year.
- It is not controlled directly or indirectly by one or more non-resident persons.
- It is not controlled directly or indirectly by one or more public corporations, subject to limited exceptions.
- No class of its shares is listed on a designated stock exchange.
The CRA's full definition also includes rules about control by combinations of these persons. Whether a particular corporation qualifies depends on who controls it, which is one reason the ownership of a new corporation is worth setting out clearly at the start.
Partnerships, limited partnerships and LLPs
A partnership is the Canadian structure whose tax treatment most resembles a pass-through. The CRA explains that a partnership does not file an income tax return of its own; instead, each partner includes a share of the partnership income or loss on a personal, corporate or trust return. Some partnerships must also file an information return (Form T5013) when they meet certain thresholds.
What a general partnership does not provide is limited liability: the partners remain responsible for the debts of the business. A limited partnership changes that only for its limited partners, and it still needs at least one general partner whose liability is not limited.
The LLP is narrower still. In Ontario, it is restricted to professions whose governing legislation permits practice through an LLP, and its name must include "limited liability partnership", "LLP" or a permitted equivalent such as "s.r.l.". Professionals who want to practise through a corporation instead can, where their governing body allows it, use a professional corporation, which is an ordinary corporation with additional conditions set by statute and by the profession.
How the CRA classifies a US LLC
Some Canadians consider forming a US LLC instead, often because of US clients or a US platform. The CRA has addressed how such an entity is classified. In Income Tax Technical News No. 38 (September 2008), the CRA stated that it had considered the characteristics of US LLCs, among other foreign entities, and concluded that they are corporations for Canadian tax purposes. That publication is now archived, but it is the CRA's published statement on the point.
The practical consequence is a mismatch: an entity that may be treated as a pass-through in the United States can be treated as a corporation in Canada. How that plays out depends on residence, the Canada-United States tax treaty and the facts of each case. Cross-border structures involve both countries' rules and are a matter for a qualified accountant or lawyer familiar with both systems.
Matching the goal to a Canadian structure
| What the LLC was meant to provide | Canadian structure that provides it |
|---|---|
| Limited liability and a separate legal entity | A corporation, federal or provincial |
| A simple, low-cost setup for one owner | A sole proprietorship, without limited liability |
| Two or more owners sharing profits directly | A general partnership, without limited liability |
| Passive investors with capped liability | A limited partnership, with at least one general partner |
| Liability protection for multiple owners | A corporation with more than one shareholder |
For those comparing the two most common options for a single owner, the sole proprietorship vs corporation guide covers liability, tax and cost side by side.
Forming a Canadian corporation
When the goal behind the LLC search is limited liability, a Canadian corporation is the form that provides it. You can incorporate with Korporex federally or in Ontario online, with the articles, share structure and minute book prepared together. Korporex is a document-preparation service, not a law firm or an accounting firm.
Frequently asked questions
Can I form an LLC in Canada?+
No. The limited liability company is a US form created under state law, and no Canadian federal or provincial statute provides for it. In Canada, limited liability for business owners comes mainly from incorporating a corporation.
What is the Canadian equivalent of an LLC?+
For limited liability, the closest equivalent is a corporation, formed federally or provincially. For flow-through taxation, the closest equivalent is a partnership, but a general partnership does not limit the partners' liability. No single Canadian form combines both features the way a US LLC does.
How does the CRA treat a US LLC?+
In Income Tax Technical News No. 38 (2008, now archived), the CRA stated that US LLCs are corporations for Canadian tax purposes. The consequences in a particular case depend on residence, the Canada-United States tax treaty and the facts, which is a question for a qualified cross-border accountant or lawyer.
Is an LLP the same as an LLC?+
No. An LLP is a limited liability partnership. In Ontario it is available only to professionals whose governing legislation permits it, and it remains a partnership rather than a corporation.
What is a CCPC?+
A Canadian-controlled private corporation is a tax category defined by the CRA. In general terms, it is a private corporation resident in Canada that is not controlled by non-residents or public corporations and has no shares listed on a designated stock exchange. Many small Canadian corporations fall into this category.