Are you looking at doing business in Quebec? You have decided to start a business in Quebec. Your decision is probably based on one of the many advantages which Quebec offers. An educated labour force ensured by many universities and colleges; cheap rents; proximity to large markets like Boston or New-York; a bilingual culture of English and French; a cheap Canadian dollar. This helps export goods and services.
All of this and great food, friendly people and lots of room to build and visit-hundreds of lakes and mountains within one hour or so from major cities.
Different Forms of Quebec Businesses for Different Needs
There are many ways to do business in Quebec. You may start small, with a single proprietorship (formerly called a registered business), whose growth, might lead you to consider either a joint venture or a general or limited partnership or the creation of a small business corporation (the incorporation) which may then later become bigger to the point where you might consider creating a public business corporation, to raise capital on a Canadian or foreign stock exchange.
In any event, you must register your business with the Quebec Registrar of enterprises (Registraire des Entreprises du Québec)
The Sole Proprietorship When Doing Business In Quebec
The Sole Proprietorship is appropriate when an entrepreneur starts a small business. It is a single person doing business under his or her name, or under a registered business name. Most self-employed individuals begin doing business as a sole proprietorship. Example: ABC Ice Cream.
Advantages: quick, cheap.
Disadvantages: no limited liability, as the sole proprietorship does have a legal existence of its own or its own patrimony (owners can be sued personally) and high personal tax rates apply to the business income: up to 53.31% combined Federal (Canada) and Provincial (Quebec) rates.
The Partnership In Quebec (General or Limited)
The partnership is a group of individuals who seek together with a common goal, personally or through their own corporations, and who join forces to create an enterprise. The partnership is often used by professionals to work together, under a partnership to share expenses only or a real, profit and losses sharing partnership.
The General Partnership
A general partnership is a group of persons, called “partners,” who work together. The partners run a business, contribute to it by sharing funds, property or other valuable assets and share profits and losses.
A general partnership agreement must be concluded between the partners. The partnership has its own name, and a juridical personality. Partners are solidarily (equally) liable for the partnership’s obligations and debts, and, very importantly, independently of the number of shares held by each partner.
The Limited Partnership
The limited partnership is created by a group of partners who nominate one or more general partners, and one or more limited partners. A partnership agreement must be concluded between the partners to set the rules for the partnership. The partnership functions under its own name and has it own juridical personality.
The partnership is managed and represented by the general partner(s), who generally is/are the most experienced partner(s). The general partner(s) is/are equally liable for the partnership’s debts: this means that they are held equally responsible for the partnership’s debts.
The limited partners provide a contribution to the partnership, usually in funds or property. As a general rule, the limited partners’ liability from the partnership is limited to the amount of their contribution to the partnership.
Advantages: an efficient form of well-structured association, can add/remove partners easily; income is taxed directly to each partner: high personal rate applies in Canada, but partners might be out of Canada or Canadian or foreign corporations (lower corporate tax rate apply)
Disadvantages: no limited liability as partners can be sued along with the partnership
The Quebec Joint Venture
A joint venture is a partnership that does not have a juridical personality. Each partner acts in his/her own name on behalf of all the partners. By default, any partnership which is not registered is a joint venture. The joint venture is usually created by a contract or agreement, either written or verbal (not recommended, as hard to prove).
The Incorporation of a Private Business Corporation: The Most Popular Form of Enterprise for Small and Medium-Sized Businesses.
Creating (or incorporating) a business corporation remains the most popular vehicle to do business in Quebec (and/or Canada). The corporation may be created under either a Canadian
(Federal) charter, if your goal is to do business in all Canadian provinces and possibly abroad, or a Quebec (Provincial) charter, which is adequate to do business only within Quebec or abroad, but the Quebec charter requires additional registrations (thus fees) in each other Canadian Province in which you will want to set up a branch of your business. Also, a Canadian charter may be better regarded than a Quebec one by some foreign clients.
Doing Business in Quebec, Canada
The business corporation is managed by one or many directors (either a Sole Director or a Board of Directors). The corporation is owned by one or many shareholders (up to 50 for a private small business corporation). A shareholders’ agreement is very strongly recommended to fix rules as to the relations between shareholders, and avoid conflicts or problems such as buying a shareholders’ participation in the business (shares) in the events or a shareholder’s desire or need to sell his shares; the prolonged incapacity or death of a shareholder, etc.
The business corporation offers many more advantages than advantages: for a more detailed list, see our next article: The Advantages and Disadvantages of the Incorporation of a Small Business in Quebec, Canada. Some of the advantages are:
Quick, efficient, well-organized; the incorporation results in the creation of a moral person with its own patrimony, thus offering limited liability in case of a lawsuit (under normal circumstances, a plaintiff can only sue the corporation and obtain a judgment against the corporation for the value of its assets only. The shareholders cannot be sued personally. Directors of the corporation can only be sued in some circumstances).
The corporation benefits from low corporate tax rates. Its financial statements remain private (they are public for a public corporation). The corporation is a flexible structure: it is easy to add or remove shareholders, obtain financing, etc.
Corporations In Quebec, Canada
A corporation offers multiple possibilities to pay yourself: depending on your needs and your tax planning, you may choose to take money out of your corporation as a salary, as a shareholder loan or an advance, or as dividends. This allows you to optimize your remuneration in an efficient tax-wise and timely manner. One must also consider the capital gain exemption on the sale of shares, which covers up to a value of $892 218 in 2021. This means that, as capital gains are currently taxed at a 25% rate, you can save more than $200 000 in taxes.
A corporation also offers the possibility to pay $10 000 tax-free to the estate of a deceased shareholder who is a director of the corporation.
The few disadvantages of a business corporation are that it is a bit more costly to run than a single proprietorship or a joint venture, as there are initial incorporation and annual maintenance costs: a corporation requires its own annual financial statements and corporate resolutions as well as applicable governmental annual registration/maintenance fees.
The corporation owns its assets. The shareholders each own a part of the corporation (through common or preferred shares), but cannot personally use the corporate assets as their own without tax consequences.
Doing Business in Quebec
We will not elaborate much on this matter, as 96% of businesses in Quebec are SMEs (small and medium-sized enterprises).
A public corporation is used for large business operations: minimum sales /assets are required to be get listed on a stock exchange. Its main advantage: raising large amounts of capital. Its main disadvantages: many regulatory requirements are expensive to respect; share value is subject to severe fluctuations.
On a final note, whichever form of business is right for you, here are a few points to consider:
Sales taxes on both products and services in Quebec are the GST: Goods and Services Tax: 5% and the QST: Quebec Sales Tax: 9.975% for a total of 14.975%.
Employee benefits: the cost to the employer is approximately 12%.
There are many available tax incentives, government grants, loans and subsidies to create jobs.
There are many helpful programs to purchase an existing business as 75% of SMEs are in need of a new owner now or within the next few years, as the current owners are reaching retirement age.
This article is for informational and educational purposes only. It does not constitute legal advice. Laws and regulations change constantly. For individual legal advice, please contact Pierre de Boucherville at: email@example.com