Business Names Conflicting with Trademarks

Federal Cases: Business Names Conflicting with Trademarks

  • Business names may be registered as a sole-proprietorship, partnership, corporation name, or a trade name owned by a corporation.
  • If a business name is used as a trademark, then that use confers on the owner the rights to that mark, including the exclusive right to use that mark and to register it, if it is distinctive.
  • Whoever first registers a trademark for their trade name has the upper hand.
  • Here are some litigious business name cases that have cost business owners many thousands of dollars. Arguing in court over who has priority to a name is very expensive. Cases often cost more than $100,000 for each side.

DIVINE HARDWOOD FLOORING LTD. v. DIVINE FLOORING INC., ET AL  Browse T-777-16

FLATIRON BUILDING GROUP INC v. FLATIRON CONSTRUCTION GROUP Browse T-890-16

Hertz System Inc v Herc Equipment Rentals Inc. T-409-16

  • HERC EQUIPMENT RENTALS INC. ON-1389811 Incorporated on 2000-01-24 Active
  • Hertz System announced that it would change its name to Herc Rentals in March 2014
  • In March 2014, HERTZ announced its plan to make its equipment rental business a stand-alone business (from its vehicle rental business) and further announced that this stand-alone business would be known as Herc Rentals.

Masterpiece Inc v Alavida Lifestyles Inc, 2011 SCC 27

MILANO PIZZA LTD V. MILANO CITY PIZZA LTD T-43-16

RE/MAX, LLC v. PROPERTY MAX REALTY INC. AND OTHERS T-545-16

Time Development Group Inc. v. Times Group Corporation:

  • Plaintiff registered its corporate name as a trademark, Times Group Corporation
  • The Federal Court framed the main issue as one of confusion: Was confusion likely between the registered trademark, TIMES GROUP CORPORATION, and the tradename, TIME DEVELOPMENT GROUP?
  • [13] With respect to TDG’s second argument, TDG points to Times’ trade-mark application in which Times asserted that it began using its mark in 2011. TDG began using its trade-name in 2008. TDG says that its prior use of an allegedly confusing trade-name should have disentitled Times from registering its mark. This is incorrect. It is the use of a trade-mark that confers on the owner the rights to that mark, including the exclusive right to use that mark and to register it. (Masterpiece Inc v Alavida Lifestyles Inc, 2011 SCC 27 at para 35-36; Trade-marks Act, s 16). The evidence set out below shows that Times has used its trade-names and mark at least since 2006: this is both before TDG began using its trade-name and well before Times’ registration of its mark in 2014. Therefore, in my view, Times clearly had the right to register its mark and to acquire the exclusive right to use it; the real question is whether TDG should be prevented from using its trade-names on grounds of confusion.
  • In 2016 FC 1075, the Federal Court declared that the registered trademark had been infringed and ordered that the appellants refrain from using “its trade-names and any confusingly similar variants.”
  • Decision upheld on appeal 2017 FCA 125 (Justice Dawson; Justice de Montigny; Justice Woods)

U-HAUL INTERNATIONAL INC v. U BOX IT INC A-3-16 appeal from 2015 FC 1345 in T-2448-14

WESTERN DRIVING ACADEMY OF LONDON INC. v. WESTERN CITY DRIVING SCHOOL INC. T-700-16



Company Names

A company name is either its corporate name or its trade name.

Trade Names and DBA

A corporation may choose to register a trade name as a division of their corporation. A trade name is a DBA (doing business as) name and it is also referred to as an o/a (Operating As) name. Often corporations will be registered as a numbered corporation and use one or more trade names. A corporation with a name may also use a trade name.

A trade name registered by a corporation should be always used in conjunction with the corporate name on all invoices, contracts, and purchase orders to give notice to others that they are dealing with a corporation and not a sole-proprietor or a partnership. An example of a proper usage is Michaels Inc. o/a Michaels Business Services. Another example is The Hudson Bay Company o/a The Bay.

An individual or a partnership typically register their business name as a trade name.

Trade name registrations last 5 years and they must be renewed every 5 years. There is usually a 6 month grace period before the trade name is permanently cancelled. If you fail to renew your trade name before it is cancelled, you will have to re-register the trade name as a new trade name.

Order a Nuans pre-search report or an Ontario Nuans report before registering your trade name.

 

Picking company names can be difficult. Good company names enable businesses to be successful in the long term.

Guidelines for Picking Good Company Names

  • Pick a company name that is unique.
  • Pick a distinctive name that is brandable.
  • Pick a name that is easy to spell. Try to only use words that are spelled properly in English or French, unless it is an ethnically targeted business.
  • Pick a short name, and preferably one with less than 4 words. i.e.: Trademark Pro

Pick Unique Company Names

Corporations Canada does not permit someone to pick a name for a federal corporation that is confusingly similar to an existing trademark or trade name registered anywhere in Canada, without the existing trademark or trade name owner’s consent. Corporations Canada’s test for what is confusingly similar is different from the test provided under the Trade-Marks Act.

When Corporations Canada refuses a proposed company name, incorporators often switch to registering their desired company name under the laws of a province where they operate, because the provinces are less strict in their tests for registering confusing names.

In Ontario, like most other provinces, the Business Names Act requires company names to be both unique and not deceptively similar to an existing registered name in Ontario, or as a person’s name, without their consent.

 

If the business will be an operating company:

  • Pick a company name where the first word or two is available as a domain name, i.e.: trademarkpro.ca
  • A company name, less any legal ending, is essentially a trade name.
  • Pick a company name that is not confusingly similar to any trademark or the trade name of any business operating in a similar line of business.

Review the trademark listings in the last two pages of a Nuans report of your proposed corporate name for conflicts. If your business will compete with any of the trademark registrants, be prepared for a trademark infringement suit. Trademark infringement suits may be brought in either the Federal Court of Canada or the Superior Court of your province.

In a recent case, Western Driving Academy of London Inc. sued Western City Driving School Inc. in the Federal Court of Canada for trademark infringement of its Western Driving Academy trademark. Both driving schools operate in London Ontario, the home of Western University and the only common word is Western.




 

The Trade-marks Act provides the following factors to consider when deciding a name is confusingly similar to any trademark or trade name.

When mark or name confusing

  •  (1) For the purposes of this Act, a trade-mark or trade-name is confusing with another trade-mark or trade-name if the use of the first mentioned trade-mark or trade-name would cause confusion with the last mentioned trade-mark or trade-name in the manner and circumstances described in this section.

  • (2) The use of a trade-mark causes confusion with another trade-mark if the use of both trade-marks in the same area would be likely to lead to the inference that the goods or services associated with those trade-marks are manufactured, sold, leased, hired or performed by the same person, whether or not the goods or services are of the same general class.

  • (3) The use of a trade-mark causes confusion with a trade-name if the use of both the trade-mark and trade-name in the same area would be likely to lead to the inference that the goods or services associated with the trade-mark and those associated with the business carried on under the trade-name are manufactured, sold, leased, hired or performed by the same person, whether or not the goods or services are of the same general class.

  • (4) The use of a trade-name causes confusion with a trade-mark if the use of both the trade-name and trade-mark in the same area would be likely to lead to the inference that the goods or services associated with the business carried on under the trade-name and those associated with the trade-mark are manufactured, sold, leased, hired or performed by the same person, whether or not the goods or services are of the same general class.

  • What to be considered

    (5) In determining whether trade-marks or trade-names are confusing, the court or the Registrar, as the case may be, shall have regard to all the surrounding circumstances including

    • (a) the inherent distinctiveness of the trade-marks or trade-names and the extent to which they have become known;

    • (b) the length of time the trade-marks or trade-names have been in use;

    • (c) the nature of the goods, services or business;

    • (d) the nature of the trade; and

    • (e) the degree of resemblance between the trade-marks or trade-names in appearance or sound or in the ideas suggested by them.

  • R.S., 1985, c. T-13, s. 6;
  • 2014, c. 32, s. 53.

 

Business Names Act, R.S.O. 1990, c. B.17

Liability for damages

6. (1) A person is entitled to recover compensation from a registrant for damages the person suffered by reason of the registration by the registrant of a name that is the same as or deceptively similar to,

(a) a name registered by the person; or

(b) the person’s name, even though the person is not required to register that name under this Act.  2010, c. 16, Sched. 5, s. 2 (1).

Same

(2) The compensation under each of clauses (1) (a) and (b) is limited to the greater of $500 and the actual amount of damages incurred.  2010, c. 16, Sched. 5, s. 2 (2).

Cancelling registration

(3) In giving a judgment for a plaintiff in an action brought under subsection (1), the court shall order the Registrar to cancel the registration that was the cause of the action.  R.S.O. 1990, c. B.17, s. 6 (3).

What is a Trademark?

Restrictions Respecting Names

There are some restrictions respecting names under the Business Names Act in Ontario, as outlined in the following:

Ontario Regulation 122/91: Restrictions Respecting Names

Consolidation Period: From June 1, 2005 to the e-Laws currency date.

Last amendment: O.Reg. 247/05.

This is the English version of a bilingual regulation.

General

1. The first character of a name shown in a registration must be a letter of the Roman alphabet or an Arabic numeral. O. Reg. 122/91, s. 1.

2. (1) For the purposes of subsection 4 (3) of the Act, the following are prescribed as the punctuation marks and other marks that may form part of a registered name:

! ” # $ % & ’ ( ) * + , – . / : ; > = < ? [ ] \ ^ ` ´ ¸ @

O. Reg. 122/91, s. 2 (1); O. Reg. 247/05, s. 1 (1).

(2) A name shown in a registration must not consist only or primarily of a combination of punctuation marks and other marks. O. Reg. 122/91, s. 2 (2).

(3) A name shall be set out in a registration with only one space between each word. O. Reg. 247/05, s. 1 (2).

3. If the name contains characters from an alphabet other than the Roman alphabet, the name shown in the registration must consist of a translation of the name into a language which contains only letters from the Roman alphabet. O. Reg. 122/91, s. 3.

Prohibited Usage

4. (1) A name shown in a registration must not include, in any language, a word or expression that is contrary to public policy, including a word or expression that is scandalous, obscene or immoral. O. Reg. 122/91, s. 4 (1).

(2) A name shown in a registration must not use a word or expression that would suggest that the registrant is engaged in an activity that is contrary to public policy. O. Reg. 122/91, s. 4 (2).

5. A name shown in a registration must not include a word, an expression or an abbreviation the use of which is prohibited under a federal Act or an Ontario Act. O. Reg. 122/91, s. 5.

6. A name shown in a registration must not use Arabic numerals or a word or expression that would suggest that the name is a corporate number name. O. Reg. 122/91, s. 6.

7. A name shown in a registration must not use a word or expression that would suggest that the registrant is a form of organization that the registrant is not. O. Reg. 122/91, s. 7.

Restrictions Respecting Names

8. (1) A name shown in a registration must not include the name of a specific individual,

(a) unless, at any time before or during the period of the registration of the name, the individual has or had a material interest in the business or activity carried on by the registrant; and

(b) unless the individual consents in writing to the use of his or her name. O. Reg. 122/91, s. 8 (1).

(2) For the purpose of clause (1) (b), if the individual is deceased and his or her death occurred within thirty years before the name is registered, the heir, executor or administrator of the individual may consent in writing to the use of the individual’s name. O. Reg. 122/91, s. 8 (2).

(3) This section does not apply if the individual is deceased and his or her death occurred thirty years or more before the name is registered. O. Reg. 122/91, s. 8 (3).

9. A name shown in a registration must not include a word, expression or abbreviation the use of which is restricted under a federal Act or an Ontario Act unless the registrant satisfies the restriction. O. Reg. 122/91, s. 9.

10. (1) Subject to subsection (2), a name shown in a registration must not include a word or expression that suggests that the business or activity of the registrant is connected with,

(a) the Crown in right of Canada or in right of a province;

(b) the Government of Canada, of a territory or of a province;

(c) a municipality; or

(d) an agency of the Crown, government or municipality. O. Reg. 122/91, s. 10 (1).

(2) If the registrant obtains the written consent of the applicable Crown, government, municipality or agency, a name shown in a registration may include a word or expression described in subsection (1). O. Reg. 122/91, s. 10 (2).

11. A name shown in a registration must not include in any language the word “college”, “institute” or “university”, if the use of the word would suggest that the registrant is a post-secondary educational institution, unless the Minister of Colleges and Universities gives written consent to the use of the word. O. Reg. 122/91, s. 11.

Exceptions

12. (1) Sections 1, 2, 3, 6, 7, 8, 10 and 11 do not apply with respect to a name shown in a registration if, on the 30th day of April, 1991,

(a) the registrant was using the name; and

(b) the registrant was not required to file a declaration under the Partnerships Registration Act(R.S.O. 1980, c. 371) respecting the name. O. Reg. 122/91, s. 12 (1).

(2) Sections 1, 2, 3, 6, 7, 8, 10 and 11 do not apply with respect to a name shown in a registration,

(a) if the registrant was using the name on the 30th day of April, 1991; and

(b) if the registrant was required, on the 30th day of April, 1991, to file a declaration under the Partnerships Registration Act (R.S.O. 1980, c. 371) respecting the name before the 1st day of July, 1991. O. Reg. 122/91, s. 12 (2).

13. Omitted (provides for coming into force of provisions of this Regulation). O. Reg. 122/91, s. 13.

The text of this Ontario regulation is subject to change, so please click and read the official version at:

http://www.ontario.ca/laws/regulation/910122

Website Disclaimer:

  1. This website is not legal advice.  We hope you find this website and any embedded videos interesting and educational.
  2. Get legal advice: If you need legal advice about registering and operating your business, contact and retain a business lawyer. They will need to do a conflicts check, before they can provide any legal advice tailored to your particular circumstances.
  3. I am not your lawyer. Not even if you send me an e-mail or call me. This is purely a transactional website for the purchase of Nuans reports to register your business. The reports are official NUANS reports as authorized by Industry Canada.
  4. Accuracy: We make best efforts to ensure the information published is correct, but it is not legal advice.  Don’t rely on it as though it is. Click and review the official version of the Act to get the most up-to-date version of the Act. This website’s liability is limited, for any damages whatsoever, to $40.
  5. Suggestions for business names and domain names: Re-branding is business and some businesses pay marketing consultants $500 to $50,000 to re-brand their businesses. If you want to retain us to pick a name for you, we will provide you with a custom quote, depending on your needs.

Business Names Act

Ontario has a Business Names Act that requires businesses to register in Ontario, if they do business in Ontario. If a business does not register, it could be prevented from suing in courts in Ontario. It could also be subject to fines for non-compliance.

The Business Names Act also has regulations that govern the form of a business name, types of businesses, and characters or symbols that may be used in a business name. For more information, read: Ontario Regulation 122/91: RESTRICTIONS RESPECTING NAMES

Business Names Act, R.S.O. 1990, CHAPTER B.17

Consolidation Period: From March 30, 2011 to the e-Laws currency date.

Last amendment: 2011, c. 1, Sched. 5, s. 2.

Definitions

1. In this Act,

“business” includes every trade, occupation, profession, service or venture carried on with a view to profit; (“entreprise”)

“corporation” means a corporation wherever or however incorporated; (“personne morale”)

“Minister” means the Minister of Consumer and Business Services; (“ministre”)

“Ministry” means the Ministry of the Minister; (“ministère”)

“person” includes an individual, sole proprietorship, partnership, limited partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, and an individual in his or her capacity as trustee, executor, administrator or other legal representative; (“personne”)

“prescribed” means prescribed by the regulations; (“prescrit”)

“Registrar” means the Registrar appointed under section 3; (“registrateur”)

“registered” means registered under this Act; (“enregistré”)

“regulations” means the regulations made under this Act. (“règlements”) R.S.O. 1990, c. B.17, s. 1; 1994, c. 27, s. 72 (1); 2001, c. 9, Sched. D, s. 13.

Registering name

2. (1) No corporation shall carry on business or identify itself to the public under a name other than its corporate name unless the name is registered by that corporation. R.S.O. 1990, c. B.17, s. 2 (1).

Idem

(2) No individual shall carry on business or identify his or her business to the public under a name other than his or her own name unless the name is registered by that individual. R.S.O. 1990, c. B.17, s. 2 (2).

Same

(3) No persons associated in partnership shall carry on business or identify themselves to the public unless the firm name of the partnership is registered by all of the partners. 1994, c. 27, s. 72 (2).

Same

(3.1) No persons associated in partnership shall carry on business or identify themselves to the public under a name other than a firm name registered under subsection (3) unless the name is registered by all of the partners. 1994, c. 27, s. 72 (2).

Non-application

(3.2) Subsection (1) does not apply to prohibit a corporation from carrying on business or identifying itself to the public by a name other than its corporate name if the name is set out in a partnership registration under subsection 4 (1) or a declaration under the Limited Partnerships Act. 1994, c. 27, s. 72 (2).

Same

(3.3) Subsection (3) does not apply to prohibit persons associated in a limited partnership from carrying on business under the firm name in accordance with the Limited Partnerships Act. 1994, c. 27, s. 72 (2).

Exception

(4) Subsection (3) does not apply to prohibit persons associated in partnership from carrying on business or identifying themselves to the public under a name that is composed of the names of the partners. R.S.O. 1990, c. B.17, s. 2 (4).

Idem

(5) This section does not apply to prohibit the use of a name that contains characters from an alphabet other than the Roman alphabet if the name is used in conjunction with the registered name. R.S.O. 1990, c. B.17, s. 2 (5).

Name to be set out

(6) A corporation and such other persons as are prescribed carrying on business under a registered name or, in the case of a corporation, identifying itself to the public under a registered name, shall set out both the registered name and the person’s name in all contracts, invoices, negotiable instruments and orders involving goods or services issued or made by the person. R.S.O. 1990, c. B.17, s. 2 (6).

….

Renewal of registration

5. (1) A registrant is entitled to renew a registration before it expires upon paying the required fee.  R.S.O. 1990, c. B.17, s. 5 (1); 1998, c. 18, Sched. E, s. 35 (1).

Late renewal

(2) A registrant is entitled to renew a registration within sixty days after it expires upon paying the required fee for late renewal.  R.S.O. 1990, c. B.17, s. 5 (2); 1998, c. 18, Sched. E, s. 35 (2).

Effective date

(3) A renewal made under subsection (1) or (2) is effective on the day immediately following the expiration day of the registration being renewed.  R.S.O. 1990, c. B.17, s. 5 (3).

Liability for damages

6. (1) A person is entitled to recover compensation from a registrant for damages the person suffered by reason of the registration by the registrant of a name that is the same as or deceptively similar to,

(a) a name registered by the person; or

(b) the person’s name, even though the person is not required to register that name under this Act.  2010, c. 16, Sched. 5, s. 2 (1).

Same

(2) The compensation under each of clauses (1) (a) and (b) is limited to the greater of $500 and the actual amount of damages incurred.  2010, c. 16, Sched. 5, s. 2 (2).

Cancelling registration

(3) In giving a judgment for a plaintiff in an action brought under subsection (1), the court shall order the Registrar to cancel the registration that was the cause of the action.  R.S.O. 1990, c. B.17, s. 6 (3).

Ability to sue

7. (1) A person carrying on business in contravention of subsection 2 (1), (2) or (3) or subsection 4 (4) or (6) is not capable of maintaining a proceeding in a court in Ontario in connection with that business except with leave of the court.  R.S.O. 1990, c. B.17, s. 7 (1).

Idem

(2) The court shall grant leave if the person seeking to maintain the proceeding satisfies the court that,

(a) the failure to register was inadvertent;

(b) there is no evidence that the public has been deceived or misled; and

(c) at the time of the application to the court, the person is not in contravention of this Act or the regulations.  R.S.O. 1990, c. B.17, s. 7 (2).

Contracts valid

(3) No contract is void or voidable by reason only that it was entered into by a person who was in contravention of this Act or the regulations at the time the contract was made.  R.S.O. 1990, c. B.17, s. 7 (3).

….

To read the full text of the Act, click: http://www.ontario.ca/laws/statute/90b17

Ontario Business Names Act

 

Website Disclaimer:

  1. This website is not legal advice.  We hope you find this website and any embedded videos interesting and educational.
  2. Get legal advice: If you need legal advice about registering and operating your business, contact and retain a business lawyer. They will need to do a conflicts check, before they can provide any legal advice tailored to your particular circumstances.
  3. I am not your lawyer. Not even if you send me an e-mail or call me. This is purely a transactional website for the purchase of Nuans reports to register your business. The reports are official NUANS reports as authorized by Industry Canada.
  4. Accuracy: We make best efforts to ensure the information published is correct, but it is not legal advice.  Don’t rely on it as though it is. Click and review the official version of the Act to get the most up-to-date version of the Act. This website’s liability is limited, for any damages whatsoever, to $40.

 

Ontario LLC

Do you want to register your existing LLC in Ontario or do you want to register an Ontario limited corporation?

Ontario LLC registration is available only for an unincorporated association, other than a partnership if the LLC was formed under the laws of another jurisdiction that grants to each of its members limited liability with respect to the liabilities of the association.

  • You may register your US or other foreign LLC in Ontario for $80. Use the Ontario Business Names Act form 6. It needs to be renewed every 5 years.
  • You cannot create an LLC in Ontario.
  • You may register an Ontario Limited company as an Ontario corporation. You may see these companies with names that have the legal ending of Limited or Ltd.; there is no legal difference between a Limited or a Ltd. legal ending. You should always use the exact legal ending that you put in your articles of incorporation.

LLC registration in Canada

Question: Can I register my New Hampshire LLC in Ontario?

Answer: Yes, fill in and file the Ontario foreign LLC form along with the Ontario government fee to register a New Hampshire LLC in Ontario.

Question: Can I create a new LLC in Ontario?

Answer: No, you may not create a new LLC in Ontario.

Question: Can I set up an LLC in Canada?

Answer: No, you cannot setup an LLC in Canada as this type of entity may not be created in Canada. LLC is an American business structure that is available in most US states and in Europe.

Generally, in Canada there are four forms of business ownership:

  • sole proprietorship,
  • partnership,
  • corporation, and
  • cooperative.

Partnerships

  • You may not register partnerships as an LLC in Ontario
  • You may register an LLP in Ontario, under the Limited Partnership Act.
  • You may also register foreign limited partnerships in Ontario using the Ontario Business Names Act form 6.

Ontario LLC

Register, renew, change or cancel a business name for a Limited Liability Partnership, Extra-Provincial Limited Liability Partnership or Extra-Provincial Limited Liability Companies: Ontario LLC Registration form for Limited Liability (Form 6, Business Names Act)

Cost:

New Registration: $80

Renewal: $80

Amendment/Cancellation: No charge

Courier Cost: $250 for in-person 1-Day service, Monday through Friday.

It is the responsibility of the applicant(s) to ensure that information submitted under the Business Names Act is accurate and complete. It is an offence under section 10 of the Act if a person, without reasonable cause, submits a statement in an application for a registration under this Act that is false or misleading with respect to any material fact. On conviction, a person guilty of an offence is liable to a fine of not more than $2,000 or, if the person is a corporation, to a fine of not more than $25,000. If a corporation is guilty of an offence, every director or officer of the corporation and every person acting as its representative in Ontario who authorized, permitted or acquiesced in such an offence is also guilty of an offence and on conviction is liable to a fine of not more than $2,000.

Payment Options: Visa , MasterCard , American Express , Debit , Cash , Cheque

Ministry of Government Services
Central Production and Verification Services Branch
393 University Ave., Suite 200
Toronto  ON  M5G 2M2

Physical Address:
Business and Personal Property Security Registration Office at 375 University Avenue, 2nd Floor, Toronto, Ontario

Payment Options:
Certified cheque, money order or personal cheque payable to the Minister of Finance.

Personal cheques must include pre-printed name, address, bank transit number and account number on the front of the cheque.

A $35.00 fee will be charged for returned non-negotiable cheques.

Form:  Registration – Ontario Limited Liability (Form 6, Business Names Act)

LLC Definition

Limited Liability Company “LLC” Is a business structure whereby the members of the company cannot be held personally liable for the company’s debts or liabilities. LLC entities differ slightly from state to state.

An LLC is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation.

A US-based LLC may be taxed as a limited partnership, a C Corp, or an S Corp. Selecting an S-Corp status is a bad idea form most growing ventures. Read this exchange between a pair of Washington-based lawyers:

The filing of a Form 2553 S election for an LLC operates as two separate elections.  One to be classified as a corporation and another election to for subchapter S treatment.  If the S election is terminated the entity is still treated as a corporation, which will default to C corporation status.  It will not be easy to convert from C Corp to partnership classification.

Of course, the real question then becomes—what happens if you “elect out” of S by creating a second class of stock?  I fear you are not a C Corp because that was elected in order to get to the S Corp.   I have never had to look at whether an LLC that has elected corp. taxation can de-elect (if that is a word) and get to be taxed as a Partnership.  Perhaps someone else in the list serve has the answer?  Because I bet it would make virtually no difference (other than getting you a lot of flexibility) if you could get to partnership tax status.

The second class of stock regulations for S corporations look to the distribution and liquidation rights to determine if a second class has been created.  Providing one shareholder with a liquidation preference versus the others may result in a termination of the S election due to the creation of a second class of stock.  The regulations mention certain arrangements that will not be treated as a second class of stock, such as bona fide shareholder agreements / buy-sell agreements, etc.

We had this situation occur with a client that had gotten some poor advice from their former CPA to elect S status as an LLC, and then later they added some partners with vesting and different profit splits (which were fine for an LLC but not for an S Corp). The CPA advised revoking the S election to return back to an LLC but in fact, by revoking the S election they became a C Corp. This was uncovered sometime later in connection with a possible sale of the business (we were hired to represent them as a seller and discovered the problem in pre-transaction diligence). We tried to get the IRS to allow for a late or retroactive conversion to an LLC but the IRS declined to do that given the circumstances so the client had to remain as a C Corp for the time being.

It was a bad situation needless to say.

Always get tax advice from a tax law specialist who understands the ins-and-outs for growing startups.

Nevada defines an LLC as a “Limited-liability company” or “company” means a limited-liability company organized and existing under this chapter, including a restricted limited-liability company. NRS 86.061

An LLC registered in a US state, such as Nevada for example, is required to register in Ontario as an “extra-provincial limited liability company” if it also does business in Ontario.

Other foreign jurisdictions may also have an equivalent form of entity, such as Poland, but they are called “Spółka z ograniczoną odpowiedzialnością” (literally: Limited liability company) which is the legal title of a private limited company in Poland.
http://en.wikipedia.org/wiki/Limited_liability_company_(Poland)

Such companies are commonly abbreviated as “sp. z.o.o.” in Poland, but it appears that 2.1(3) of the Business Names Act prohibits the use of abbreviations of the company name in Ontario, because it is a name other than an LLC’s registered company name.

Registering an LLC in Ontario, if it was formed in another jurisdiction, in is discussed in section 2.1 of Ontario’s Business Names Act :

Extra-provincial limited liability company

2.1 (1) In this section,

“extra-provincial limited liability company” means an unincorporated association, other than a partnership, formed under the laws of another jurisdiction that grants to each of its members limited liability with respect to the liabilities of the association. 1998, c. 18, Sched. E, s. 33.

Registration

(2) No extra-provincial limited liability company shall carry on business in Ontario unless it has registered its company name. 1998, c. 18, Sched. E, s. 33.

Use of “Limited”

(2.1) Despite any other Act, the word “Limited” or any abbreviation of that word or any version of it in another language may be used in the registered company name of an extra-provincial limited liability company. 2010, c. 16, Sched. 8, s. 2.

Use of registered name only

(3) No extra-provincial limited liability company shall carry on business in Ontario under a name other than its registered company name.  1998, c. 18, Sched. E, s. 33.

Exception

(3.1) Despite subsections (2) and (3), an extra-provincial limited liability company may carry on business or identify itself to the public under a name other than its company name, if the name is set out in a partnership registration under subsection 4 (1) or a declaration under the Limited Partnerships Act.  2010, c. 16, Sched. 8, s. 2.

Laws of other jurisdiction

(4) The laws of the jurisdiction under which an extra-provincial limited liability company is formed shall govern its organization and internal affairs and the liability of its managers and members.  1998, c. 18, Sched. E, s. 33.

Service

(5) A person may serve a notice or document on an extra-provincial limited liability company at its Ontario place of business, if any, or its address required to be maintained under the laws of the jurisdiction of formation or its principal office address.  1998, c. 18, Sched. E, s. 33.

http://www.ontario.ca/laws/statute/90b17

 

Limited Liability Companies

Bulletin 4009
Published: March 2004
Content last reviewed: September 2012
ISBN: 0-7794-3339-4 (PDF)

Publication Archived

Notice to the reader: Effective January 1, 2009, the Canada Revenue Agency (CRA) administers Ontario’s corporate income tax, capital tax, corporate minimum tax, and the special additional tax on life insurers.

As a result, the Corporations Tax Act provisions described on this page and in other publications are only applicable to taxation years ending December 31, 2008 and prior.

For taxation years beginning January 1, 2009, the Taxation Act rules apply.

This publication was archived and kept for historical purposes. Use caution when you refer to it, since it reflects the law in force at the time it was released and may no longer apply.

Application

This bulletin replaces Information Bulletin Number 2753 originally published April 1997.

The bulletin sets out the policy of the Corporations Tax Branch (Branch) regarding the status of a U.S. limited liability company (LLC) for the purposes of the Corporations Tax Act (Ontario) (CTA). It is important to determine the status of an LLC because the application of many of the provisions of the CTA is dependent on the classification of an entity (i.e., corporation, partnership).

Introduction

  1. An LLC is an unincorporated organization, created under the laws of a particular state of the United States, that can generally offer its members the features and benefits of both a corporation (e.g., separate legal personality, limited liability to its members, etc.) and a partnership (e.g., flow-through taxation forU.S. tax purposes where the LLC is treated as a partnership under the Internal Revenue Code).

Corporation Versus Partnership

  1. For Canadian taxation purposes, the distinction between a corporation and a partnership is an important one. A corporation is a separate, taxable legal entity, whereas in the case of a partnership, it is generally the individual partners who are subject to tax, not the partnership itself.

“Corporation” for Federal Tax Purposes

  1. Federal Interpretation Bulletin IT-343R, issued by the Canada Revenue Agency (CRA), describes a corporation as an entity created by law, having a legal personality and existence separate and distinct from the personality and existence of those who caused its creation or those who own it. Where an entity has such a separate identity and existence, the CRA will consider it to be a corporation for taxation purposes under the Income Tax Act (Canada) (ITA).

State LLCs Considered as Corporations

  1. Based on the description of a corporation in paragraph 3, the CRA has reviewed the following statutes, and has determined that LLCs formed thereunder are to be treated as corporations for purposes of the ITA:Delaware (*)
    Chapter 18, subtitle II of Tier 6 of the laws of DelawareFlorida
    Florida Limited Liability Company ActIndiana
    Indiana Business Flexibility ActKentucky
    Chapter 275 Limited Liability Companies (known and cited
    as the “Kentucky Limited Liability Company Act”).Michigan
    Michigan Limited Liability Company ActNew Hampshire
    New Hampshire Revised Statutes Annotated, Chapter 304CNew York
    Chapter 34 of the Consolidated Laws of New York (1994)
    (known and cited as the “New York Limited Liability Company Law”)Ohio
    Section 1705 of the Ohio Revised CodeOregon
    Oregon Revised Statutes, Chapter 63

    Tennessee
    Tennessee Limited Liability Company Act

    Texas
    Texas Limited Liability Company Act

    Wyoming
    Wyoming Limited Liability Company Act

    (*) Except partnerships formed under the Delaware Revised Uniform Partnership Act. The CRA considers such entities to be partnerships for Canadian tax purposes.

Ontario Treatment of LLCs

  1. The CTA parallels the ITA in its definition of a corporation. It has also been the practice of the Branch to follow federal interpretation bulletins in cases where the CTA parallels the ITA.
  2. It is therefore the position of the Branch to treat LLCs formed under the statutes of those states mentioned in paragraph 4, as corporations for the purposes of the CTA. Several other jurisdictions now have legislation or proposed legislation designed to form LLCs based on one of the models in the above-noted states. Based on the current legislation, the Branch will continue to follow any further determinations made by the CRA relating to the status of an LLC for the purposes of the ITA.http://www.fin.gov.on.ca/en/bulletins/ct/4009.html