When you want to start a business, the first moments are crucial for the future. Indeed, you will have to choose which business structure you want to use.
When you want to make a profit, a joint-stock company, commonly called a corporation, is one of the many options available to you in Quebec.
The corporation is the most complex and expensive structure to set up. Nevertheless, it offers numerous advantages and becomes essential for larger companies.
JuriGo explains all the advantages of the corporation in Quebec!
What is a corporation?
When you choose to set up a corporation in Quebec, it is important to know that this structure is different from other options available to you. Indeed, the main difference is that the company is a legal entity.
As a result, it has an independent entity from that of the directors and owners. This means that the corporation will have to file its own tax return and own its assets.
In short, the company is independent and autonomous in its own existence. Since it will have its own rights and obligations, the company can sign contracts to pursue an individual in court. It is a separate legal entity.
Typically, in order to carry out the tasks of the company, the directors of the company will be appointed by the shareholders and will be responsible for the management of the company.
The administration of a corporation can be extremely complex depending on the size of the company and the number of shareholders or directors. For example, a company with one shareholder will have simpler management than a multinational corporation.
The operation of your corporation will be governed by certain documents that you will have to draft at the time of incorporation:
- The shareholders' agreements,
- The incorporating statute (provincial or federal law),
- The articles of incorporation, and
- The general by-laws.
Through these documents, you will be able to understand the operating procedures of your company. Furthermore, a corporation is owned by its shareholders, who are individuals holding shares in the company.
There are numerous reasons why an individual may choose to incorporate a corporation instead of other legal options in Quebec, including:
- A certain reputation that comes with incorporating your company,
- The ability to separate your assets and debts from the company,
- The option to raise more capital,
- Benefiting from a more advantageous tax rate, and
- Being able to sell company shares.
What is the purpose of incorporating a corporation?
When you establish a company, you must go through the process of incorporating the corporation. This primarily serves to formalize the legal personality of your company.
Incorporation can be done under federal or provincial law when you decide to establish your business. Both laws are similar, but they contain certain differences.
If you want to incorporate a company in Quebec, it is better to seek the help of a lawyer specialized in incorporation to choose the best option for you.
Don't wait any longer and fill out the JuriGo form now to find the specialized lawyer you need!
The advantages of the corporation
When choosing a corporation, it is important to keep in mind that it is a complex and costly business structure. However, there are many advantages that come with this choice of company.
Here are the main advantages associated with a corporation!
The responsibility of the company's shareholders
Due to the fact that the corporation is a legal entity, it has its own separate entity from that of the shareholders. Therefore, it will normally be considered solely responsible in the event of the company's fault.
| Attention! It is possible, in certain exceptional cases, for shareholders to involve their own liability. In this case, it will be limited to the amount equivalent to your shares in the company. If you have purchased shares for the equivalent of $10,000, you will only be responsible for that amount. |
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In the event of the company's bankruptcy, you will not be able to lose more than the money invested in it.
It is also possible that you may be liable for an amount greater than your share in the company. This will be the case if you provide a guarantee or any other form of security.
In this case, you could be liable for the debts of the corporation. However, if you are not a guarantor, you will not be liable for the debts and your personal assets will not be at risk in the event of legal action against the company.
Reducing taxes to pay
When you establish a partnership, the business income must be declared by the individuals themselves and not by the business since there is no legal personality.
However, if you have a corporation, whether it is incorporated federally or provincially, the tax rate is lower than for a regular individual.
Normally, at the federal level, here is what the taxation of an individual or a sole proprietorship looks like:
| Income | Tax rate |
|---|---|
| $50,197 and below | 15% |
| Between $50,197 and $100,392 | 20.5% |
| Between $100,392 and $155,625 | 26% |
| Between $155,625 and $221,708 | 29% |
| $221,708 and above | 33% |
However, if you decide to incorporate your corporation, here's what your Federal taxation could look like:
| Income | Tax rate |
|---|---|
| Base tax rate | 38% |
| With the addition of a tax relief | 28% |
| With the addition of tax reductions | 15% |
| With the tax deduction for small businesses | 9% |
In addition, there are many tax deduction programs for small companies that allow for even more money in the company's coffers. However, it is important to take the time to comply with all the requirements of the law.
Good to know! With the remaining money, you can redistribute the profits to shareholders through dividends. .These are subject to reduced taxation for shareholders.
In other words, the corporation allows you to save more money through tax reduction. However, the annual costs associated with your company's operations must be taken into consideration.
Are you interested in incorporating your business? Contact JuriGo for free to find the lawyer you need!
Also, in the event that a shareholder decides to sell their shares of the company, they will receive a tax deduction on the profit made from the sale of the shares.
Sharing profits among shareholders
Indeed, it will be possible, if you meet certain conditions, to distribute a portion of the company's profits among the shareholders. The sharing of profits can be done through:
- Paying a salary,
- Granting a bonus,
- Issuing additional shares, or
- Paying dividends to the shareholders.
This can be useful in reducing the tax that shareholders personally have to pay. Indeed, through the issuance of shares or the payment of dividends, you can reduce your income and thus have a lower tax rate.
Accumulate company income
Obviously, you are not required to pay out all of your profits in dividends. In fact, you can keep a portion of the profits in the company's coffers for later.
For example, it is possible for administrators to retain a portion of the profits and gradually distribute them as dividends. This makes the company more attractive to potential shareholders.
Find financing more easily and flexibly
When you have a company, it will be easier for you to access multiple sources of investment. Due to its legal personality, the corporation can borrow money itself.
However, if it wishes to raise money, the company can also issue shares as well as bonds. This is the most common source of investment for corporations.
| Important! If you wish to sell shares to people other than employees or their close relatives, you will need to obtain authorization from the Financial Markets Authority. To do so, it will normally be necessary to make a public offering. |
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Why choose issuing shares over bank borrowing? Unlike financial institutions, shareholders do not demand repayment of the amount and do not impose additional interest. Therefore, you have more leeway.
Continuing the existence of the company
Unlike partnerships, the company has the ability to exist indefinitely. Indeed, since it is a legal entity, its existence does not depend on that of the directors.
Therefore, if you wish to end a corporation, it is necessary for you to proceed with its dissolution or its merger into another company . The mere fact that the founder dies does not justify the end of the business.
What are the disadvantages associated with a corporation?
However, there are several negative aspects to incorporating a corporation. In this case, you will need to be sure to compare the advantages and disadvantages according to your particular situation.
The costs associated with starting and operating the corporation
Indeed, the process of incorporating a corporation is very expensive, so you need to be sure that this structure is advantageous for you. In addition to incorporation, you will need to consider the costs associated with operating the corporation.
Here are some costs to consider when setting up a corporation in Quebec:
| Service | Regular Rate | Prioritized Rate |
|---|---|---|
| Company Name Reservation | $24.00 | $36.00 |
| Certificate of Incorporation | $367.00 | $550.50 |
| Annual Report | $84.00 | $126.00 |
| Initial Filing within Deadline | $0.00 | $49.00 |
| Annual Update Filing within Deadline | $98.00 | $147.00 |
| Current Update Filing | $0.00 | $49.00 |
| Correction Update Filing | $0.00 | $49.00 |
Make sure that the tax benefits allow you to save more money than the costs associated with the corporation.
The complex functioning of the company
The functioning of a corporation is much more complex than that of a sole proprietorship like the general partnership because it has its own personality.
First, at the level of your company's accounting, you will need to have a separate income tax return and accounting for the corporation. You will probably need to hire an accountant to manage the accounts.
Also, the internal structure of the company is much more complex. Normally, it is necessary to include a board of directors as well as an annual shareholders' meeting. It is possible to appoint managers and pass resolutions.
Finally, you will have to fill out a lot more documents than for other legal business structures in Quebec. In particular, you will need to keep a record of minutes and several registers up to date.
If you operate in Quebec, like other businesses, you will also need to register with the Business Registry. This registration must be updated annually.
Incorporate your company with one of JuriGo's partner lawyers!
As you have probably noticed, choosing the corporation can be a very advantageous option for certain situations. However, you must be certain to make an informed decision about the choice of structure.
When you want to incorporate your company, there is nothing better than calling on a lawyer specialized in company incorporation. The lawyer can help you with all the documents necessary to establish your company.
Find this lawyer for free by filling out the JuriGo form. It's quick and without any obligation on your part!