Best Practices for a Canadian With American Business Partner

Going into business with a partner in the same city is complicated enough. Adding a border between you introduces a second legal system, a second tax authority, two currencies, and immigration rules that can affect whether either of you can even work at the other's office.

Many Canadian founders approach a US partnership the way they would a domestic one — agree on the split, start operating, and handle the paperwork later. Across the border, "later" is expensive. The way you structure the business at the outset determines how profits are taxed in two countries, whether money and people can move freely, and how cleanly you can exit if the relationship sours.

This article is a high-level map of the decisions a Canadian with an American business partner should work through early — incorporation, ownership, tax, immigration, banking, and dispute resolution. The corporate team at Lamba Law regularly helps GTA founders think through these cross-border questions before they commit to a structure.

The first structural question is which country's law your company lives under, and there is rarely a single right answer.

A single Canadian corporation. If the business will operate mainly in Canada, incorporating once under the Ontario Business Corporations Act (OBCA) or the Canada Business Corporations Act (CBCA), with your US partner holding shares, is often the simplest path.

A single US entity. If the market, customers, and revenue are mainly in the United States, your partner may prefer to incorporate there. That can make commercial sense, but it changes how you, as the Canadian, are taxed on your share of the profits and puts the company under US corporate law.

Parallel or holding structures. Many cross-border businesses end up with an entity in each country, linked through a holding company or through contracts between them. This adds cost and complexity, but it can isolate liabilities, keep each country's operations clean for tax, and give each partner a familiar home entity.

The right answer depends on where revenue is earned, where employees sit, and each partner's tax position — a decision to model with a lawyer and a cross-border accountant, because the legal and tax answers are intertwined.

A common surprise for cross-border partners is that Canadian corporate law pays attention to the residency of directors, and in some cases still restricts it.

If you incorporate federally under the CBCA, a portion of the directors must be resident Canadians. That requirement can complicate a founding team that is split across the border, since a US partner cannot meet it alone.

Ontario took a different path. The OBCA removed its Canadian-resident-director requirement in 2021, so an Ontario corporation can have a board made up entirely of non-residents. For many Canadian-American partnerships, this makes provincial incorporation in Ontario the more flexible option at the board level.

Shareholders are treated differently from directors. There is no residency requirement to own shares of a Canadian corporation, so your American partner can hold equity regardless of where they live. The residency questions are about who sits on the board and controls the company, not about who can invest in it.

Every multi-owner company benefits from a shareholder agreement, but a cross-border partnership needs one written for the border, not a domestic template with two names dropped into it.

Beyond the usual buy-sell, drag-along, and dispute provisions, a cross-border shareholder agreement should be explicit about the details that only arise when owners live in different countries:

• Which country's law governs the agreement, and which country's courts or arbitrators resolve disputes
• The currency for capital contributions, shareholder loans, and distributions, and who carries the exchange-rate risk
• How profits are distributed when the two partners face different tax systems
• What happens if one partner cannot obtain the immigration status needed to work in the other's country
• How shares are valued and paid for on a buyout across different currencies and tax regimes

Settling these terms at the outset is far cheaper than litigating them later in two jurisdictions at once.

Tax is where cross-border partnerships most often go wrong, and the classic trap is the US limited liability company, or LLC.

An LLC is a popular US business vehicle because, for US tax purposes, it is usually treated as a flow-through: profits pass to the owners and are taxed once. The Canada Revenue Agency does not see it that way. The CRA generally treats a US LLC as a corporation. That mismatch can leave a Canadian member taxed in both countries on the same income, with limited ability to claim the foreign tax credits or treaty relief that would normally prevent double taxation. A Canadian offered a membership interest in a US LLC should get cross-border tax advice before signing.

Withholding tax is the other recurring issue. When dividends, interest, and certain other payments cross the Canada-US border, the paying country generally withholds a portion of the payment. The Canada-United States Tax Convention exists to reduce that burden and keep the same income from being fully taxed twice, but claiming its benefits depends on meeting eligibility conditions and filing the right forms. These are questions for a cross-border tax accountant working with your lawyer, because the structure that is simplest legally is not always the cleanest for tax.

A frequent, costly assumption is that owning part of a company across the border comes with the right to work there. It does not. Corporate ownership and immigration status are separate questions.

If your American partner wants to work at the Canadian business in any real capacity, they generally need proper work authorization, and the same is true if you want to work at the US operation. Being a shareholder, or even a director, does not by itself grant the right to work in the other country.

There are immigration pathways designed for business owners, investors, and employees who move between Canada and the United States, some of them supported by trade agreements between the two countries. Eligibility turns on specifics: the role, the ownership structure, the nature of the work, and time spent across the border. Because the corporate structure you choose can affect which immigration options are open to you, it is worth raising the movement-of-people question at the same time you decide where to incorporate.

The day-to-day mechanics of a cross-border business are easy to underestimate. Opening a business bank account often takes longer when one owner is a non-resident, because banks run identity and know-your-customer checks on every significant owner and director. It is common to end up maintaining accounts in both countries.

Currency is a constant undercurrent. If revenue arrives in US dollars while wages, rent, and taxes are paid in Canadian dollars, exchange-rate swings affect your margins whether or not you plan for them. Partners should agree early on the currency the company treats as its main operating currency, how products and services are priced, and who absorbs the movement between the two.

If you run entities in both countries, payments that flow between them — management fees, licensing, loans, shared costs — need to be set at fair, defensible amounts, because tax authorities on both sides of the border scrutinize transactions between related parties.

When both partners live in the same city, a dispute plays out in one court system. When they live in different countries, the first fight is often about where the fight happens.

A judgment from a Canadian court is not automatically enforceable in the United States, and the reverse is also true; enforcing it can require a second proceeding in the other country. This is why many cross-border partners choose arbitration and name a single seat, set of rules, and language in their shareholder agreement. Arbitration awards are generally easier to enforce across borders than court judgments under international treaties on the recognition of arbitral awards, and it keeps the dispute private while letting the parties pick a decision-maker who understands cross-border commerce.

Whatever mechanism you choose, choose it in writing at the beginning. Deciding the forum, governing law, and language while everyone is on good terms is one of the most valuable things a cross-border shareholder agreement can do.