A common question when starting a business is in regard to choosing a jurisdiction under which to operate. For example, here in Canada you can incorporate provincially or federally. In the US, you can incorporate in any of the states, provided you meet their requirements. Other countries will allow you to form a corporation under their auspices, which may have various benefits to you and your business.
To decide the answer as to which jurisdiction is best for your business, you need to think about the basic reasons why you incorporate to begin with. First, it offers you as a private person protection from the liabilities of the corporation (with a few exceptions). Second, it offers you options for taxation purposes. Third, it gives you a vehicle under which to operate your business, raise capital, etc.
The first benefit is pretty much standard fare for a corporation, and so is basically irrelevant to this discussion.
The second would require some serious consultation with your accountant and lawyer, who could work out the most beneficial way to organize your business.
The third would imply that you look at what you intend to do with your business, and what requirements might ensue from that activity.
For example, if your entire business is operating in Toronto, with no business activity outside Ontario, you would be unlikely to have any reason to incorporate anywhere other than Ontario (except for possibly incorporating federally instead). If you will need to borrow money, you should look at what requirements banks and similar institutions have in regard to whom they will lend money to, and at what terms.
The simplest rule of thumb, though, is to incorporate in the same place that your business operates. If you don’t operate in the Cayman Islands, than why are you putting your corporation there? An audit of your finances might reveal this holding, and could result in penalties if you’re caught doing something like this, under the premise of tax avoidance. If you think that isn’t likely, both Canada and the US have recently been catching people with exactly this type of arrangement, and the fines have been incredibly steep, far beyond any potential savings the arrangment might have provided.