US LLC and Canadian corporation vocabulary for founders selling into Canada

What to take away

Selling north starts with two different entity vocabularies

A US founder selling into Canada meets two sets of words that sound similar and mean different things. On the US side the words come from state statutes and the Internal Revenue Code. On the Canadian side they come from federal and provincial corporate law and the Income Tax Act.

The confusion is not cosmetic. If you describe your US LLC to a Canadian customer, accountant or bank using Canadian vocabulary, you will describe the wrong thing. The same happens in reverse when a Canadian supplier calls itself a corporation and you assume the US meaning.

Start with one question: are you selling into Canada from a US entity, or are you forming a Canadian entity? The answer changes which words matter. Most founders do both, and the vocabulary then has to hold up in two countries at once.

This site keeps a wider set of definitions in its business vocabulary split into pairs, which is useful once the entity words are clear.

US LLC, C corporation and S corporation terms set side by side

These three labels describe US entities, and only one of them is a tax classification in the strict sense.

A US LLC is formed under state law. The IRS does not treat "LLC" as a tax category. A single-member LLC is disregarded for federal tax purposes and reports on Schedule C, while a multi-member LLC is a partnership by default. Either can elect to be taxed as a corporation.

The IRS explains this treatment on its page for the Limited liability company (LLC) | Internal Revenue Service.

A C corporation is a corporation taxed under subchapter C. It pays tax at the entity level, and shareholders pay again on dividends. That second layer is the reason many small US companies avoid it.

An S corporation is not a separate entity type. It is a corporation, or in some cases an LLC, that made an election under subchapter S. Income passes through to shareholders, who must meet eligibility rules on number and type.

The Small Business Administration sets out how these structures differ from a sole proprietorship on its Launch your business - Small Business Administration page. Read it before you assume the LLC label settles your tax position.

Canadian federal incorporation and what it requires

Canadian federal incorporation means creating a company under the Canada Business Corporations Act through Corporations Canada. The result is a corporation that can carry on business anywhere in Canada while staying subject to federal rules.

The process needs a name or a numbered name, a registered office address in Canada, a board of directors with at least one resident Canadian in most cases, and articles of incorporation. You also file an initial registered office and director information form.

Corporations Canada publishes the requirements and the forms on its Corporations Canada site.

Federal incorporation does not replace provincial registration. If you carry on business in a province, you usually register extra-provincially there as well. Ontario, Quebec, British Columbia and Alberta each run their own registry, and fees differ.

One practical point for a US founder: the corporation is a Canadian taxpayer from the day it exists. It files a T2 return, keeps Canadian books, and deals with the Canada Revenue Agency on its own account. The CRA outlines those obligations in its Corporations - Canada.ca material.

Numbered steps for a US founder forming federally:

GST/HST registration and CRA filing vocabulary for a US founder

GST/HST registration is the Canadian consumption tax account. GST is the federal goods and services tax. HST is the harmonized version that combines federal and provincial parts in participating provinces. Quebec runs its own system, and British Columbia and Saskatchewan have their own provincial sales taxes outside the GST.

The trigger is not citizenship. It is whether you make taxable supplies in Canada and exceed the small supplier threshold over four consecutive calendar quarters. A non-resident can be required to register. If you are a non-resident with no permanent establishment in Canada, registration is often mandatory as soon as you make taxable supplies, with no small supplier relief.

Once registered, you charge the tax on taxable sales, collect it, and claim input tax credits on tax you paid on business inputs. You file returns, usually annually, quarterly or monthly, depending on your revenue.

CRA filing vocabulary you will meet:

If you run a Canadian corporation and pay yourself, the payroll and dividend words matter as much as the tax words. Founders comparing personal accounts should read the guide on self-employed canadians before deciding where profit sits.

Permanent establishment and the words that decide tax residency

Permanent establishment is the phrase that decides whether Canada taxes your business profits. The term appears in the Canada-United States tax convention and in Canadian domestic law.

A fixed place of business in Canada usually creates one. So does a dependent agent who habitually concludes contracts for you. A server alone rarely does. An employee working from a Canadian home office can, depending on the facts.

If you have a permanent establishment in Canada, Canada taxes the profits attributable to it, and the US gives relief through the treaty. If you do not, business profits generally stay taxable only in the US, though withholding can still apply to certain payments.

Residence is a separate word. A US LLC is not a Canadian resident. A Canadian federal corporation is. A corporation can be resident in Canada by incorporation or by central management and control, and the two tests can pull in different directions.

The practical result: keep the words separate. Permanent establishment is about where you do business. Residence is about where the entity belongs. Treaty relief depends on both.

Cross-border invoicing: which form, which currency, which number

Cross-border invoicing is where vocabulary turns into money. Three choices decide whether your invoice gets paid without a query.

Currency. Invoice in the currency of the contract. A US vendor billing a Canadian customer in US dollars is normal, but the invoice should state the currency code, not just a dollar sign. Canadian customers often need the Canadian dollar equivalent for their own books.

Tax number. A US entity with no Canadian registration should not charge GST/HST. It should show its US tax identification number if the customer asks for one. A GST/HST registrant must show its business number with the RT program account on the invoice.

Tax line. Registered suppliers show the GST/HST separately, or note that the supply is zero-rated or exempt. Non-registered suppliers leave it off and may state that no Canadian tax is charged.

A Texas software company bills a Toronto client 10,000 US dollars for a project delivered remotely. The company has no Canadian office and no Canadian employees. It is not registered for GST/HST.

The invoice shows the amount in US dollars, the US tax identification number, and a line stating that no GST/HST applies because the supplier is not registered in Canada. The client pays in full and claims the expense on its own books.

If the same company opened a Toronto office and hired a Canadian employee, the facts change. Permanent establishment and GST/HST registration questions arrive together, and the invoice format changes with them.

A term-by-term comparison of US and Canadian filing words

These pairs cause the most confusion for founders working in both countries.

Some words look identical and behave differently. Articles of incorporation exist in both systems but are filed with a state in the US and with Corporations Canada federally. A registered agent in the US receives service of process. A registered office in Canada is an address, and the corporation must keep records there.

Numbering differs too. A US EIN is nine digits with a two-digit prefix. A Canadian business number is nine digits, followed by a two-letter program code and a four-digit reference. Writing one in the format of the other causes bank rejections.

Spelling is a small trap with real cost. Canadian government forms use spellings that differ from US usage, and some online forms reject the US version. The list of canadian business spelling traps covers the words that appear on government forms.

Reading the numbers behind the entity is the next skill. A founder who can read a balance sheet, an income statement and a cash flow statement has an advantage in either country. The guide that compares three statements against the questions they answer is a good place to build that.

Before signing anything with a cross-border lender or supplier, check the definitions in the best business vocabulary tools 2027 against the words used on each side of the border.

Common questions