In Quebec, choosing the legal structure of a business is a key strategic decision. Indeed, it influences management, taxation, the liability of the members, as well as the sustainability of the business.

Moreover, there are several recognized legal forms of operation. Each has its advantages and disadvantages depending on the project, the number of partners, the risks, and the objectives. Here is an overview of the main business structures in Quebec.

Sole Proprietorship

First of all, the sole proprietorship is the most common legal form in Quebec. It stands out for its simplicity of creation and low start-up costs. It is operated by a single natural person who is the sole owner, manager, and beneficiary.

However, from a legal standpoint, the sole proprietorship has no legal personality or assets separate from its owner. The assets of the business and those of the owner are merged.

Thus, the entrepreneur enjoys all the profits but also assumes all debts and obligations without limit. In addition, the owner may hire employees. However, they remain responsible for the acts committed by them in the course of their duties.

Finally, the sole proprietorship automatically ends upon the death of the entrepreneur.

Corporation

The corporation is the only form of company in Quebec that has legal personality (art. 2188 para.2). It can be incorporated by a single person and is generally managed by a board of directors.

As a legal entity, it has its own assets, distinct from those of its shareholders. It can therefore enter into contracts, own property, and sue or be sued through its representatives.

Corporations are governed by their constitutive law, either the Quebec Business Corporations Act (QBCA) or the Canada Business Corporations Act (CBCA). They must therefore necessarily carry on business for profit.

Shareholders usually do not have direct decision-making power over management but hold certain rights (vote, dividends, sharing of the remainder, etc.) attached to their shares. Their liability is limited to their investment. Moreover, with a unanimous agreement, they can also restrict or withdraw the powers of the board of directors.

General Partnership

The G.P. (general partnership) brings together at least two partners carrying out a common activity in a spirit of collaboration. They therefore share profits and losses among themselves.

This structure is simpler and less costly than the corporation, but it does not have legal personality. Thus, the partners may appoint one or more managers to administer the partnership.

However, each partner is jointly and severally liable for debts, even those contracted by another partner. The partnership therefore ends by unanimous consent of the partners, by fulfillment of its purpose, or by impossibility of achieving it.

Limited Liability Partnership

The L.L.P. is a variation of the general partnership, created specifically for the joint practice of regulated professions (lawyers, notaries, accountants, etc.). It is composed of a minimum of two professionals who are members of a professional order.

This form makes it possible to limit the professional liability of each partner. Thus, a partner remains responsible for their own professional faults. However, they are not held responsible for those committed by their colleagues (art. 187.14). For all other obligations of the partnership, however, the partners remain jointly and severally liable (art. 2221).

Limited Partnership

The limited partnership is composed of at least two types of partners: the general partner and the limited partner. It is often used in investment contexts, particularly for real estate projects.

The general partner is responsible for managing the partnership and assumes unlimited liability. They receive a share of the profits in exchange for their active involvement.

The limited partner, on the other hand, invests funds but must not take part in management. Their liability is limited to their contribution, unless they interfere in management, in which case they could be held liable as a general partner.

Joint Venture

The joint venture is a flexible form of association of two or more people, often used for specific projects. It is not registered, has no legal personality of its own, and has neither a distinct name nor domicile.

In fact, it comes into being when a contract, written or verbal, expresses a common intention to associate in order to carry out a business. The partners are jointly and severally liable to third parties.

Conclusion

In conclusion, the choice of the legal structure of a business must be made carefully. It depends on the objectives, the level of risk, the resources, and the desired management model.

While the sole proprietorship is simple, the corporation offers better asset protection. Moreover, partnerships make it possible to adapt the distribution of powers and responsibilities.

There are also other business structures such as the trust, the cooperative, or the association. These forms meet specific governance, tax, or social purpose needs.

Thus, to properly assess the structure best suited to your situation, do not hesitate to consult a member of our team. We will support you in your reflection and guide you towards the legal form that will best support your business objectives.