By comparison, in most corporations, shareholders are not usually liable due to a limited liability model.
This became especially significant after the 1997 introduction of the entity classification rules in the US Internal Revenue Code which provided that: [(b)(8)(ii)(A)] The following entities will not be treated as corporations under paragraph (b)(8)(i) of this section: (1) With regard to Canada, a Nova Scotia Unlimited Liability Company (or any other company or corporation all of whose owners have unlimited liability pursuant to federal or provincial law)....[4]In essence, the ULC can act as a “flow-through” or “disregarded” entity for US tax purposes as the US tax rules “look through” the ULC to its shareholder(s).
Nova Scotia had been the last of the Canadian jurisdictions to allow the incorporation of such corporations at that time.
Since then, Alberta allowed such formations in 2005, followed by British Columbia in 2007, to take advantage of this niche provided by US tax law.
[7] However, technical guidance issued by the Canada Revenue Agency has indicated that certain strategies are available to mitigate the impact of such changes.