In setting up a business, the right business structure can make all the difference between a bumpy road and a smooth operation . As the driver of your business, the first and most important decision you have to make is to choose the right decisions for your business needs with the advice of lawyers that specialize in business law.
You've probably already of incorporation, but what if we told you that this is only the tip of the iceberg! Quebec law allows for the incorporation of various forms of businesses, whether it be a general partnership, a limited partnership, or even a business trust!
Let us highlight all of the business structures available to you so that you can explore your options with a JuriGo partner.
The corporation as the legal “vehicle” of choice for Quebec entrepreneurs!
While we're on the subject of business structures, allow us to start by saying that the corporation is the most popular legal vehicle for Quebec entrepreneurs. Now that we've said that, does that mean that your choice is made? Not so fast, because when you think about advantages, you will inevitably encounter disadvantages, and the corporation is no exception.
First of all, a corporation is often referred to by its old name of "company", a term that is still used, but is now obsolete. The corporation is a unique vehicle since it creates a new entity that is distinct from its members and is granted a legal personality of its own.
It becomes, in a sense, the "property" of its shareholders and it is the board of directors that is responsible for contracting on behalf of the corporation. Moreover, it has a perpetual existence that is not impacted by the death of a director or shareholder.
What does a separate legal personality of a corporation imply?
The fact that a corporation is recognized as a legal person means that the acts of the corporation do not bind its directors personally, and vice versa. This is as true for civil liability as it is for debts or potential bankruptcy of the corporation or one of its members.
Beware of lifting the corporate veil! Even if the directors of the corporation do not incur personal liability when they contract in good faith on behalf of the corporation, this protection does not apply to fraud or abuse of rights.
For example, a director who uses the corporation as a "shell" or "alter ego" to impede the rights of his or her creditors could be held personally liable. This is called lifting the corporate veil, so consider yourself warned.
There are many financial advantages to incorporating a business! Operating any business requires financing, regardless of where it comes from. The advantage of incorporating a business is that the financing possibilities are multiplied.
Unlike single proprietors, incorporated companies can give movable, immovable, future, tangible, and even intangible assets as security to their lenders. This drastically increases the possibilities of financing. In addition, from a tax standpoint, legal entities such as corporations are subject to a lower tax rate, which is another major advantage.
Why is it essential to have a shareholders' agreement?
Incorporating a business means that many shareholders will be involved, each with certain decision-making powers. When harmony breaks down and conflicts reach an impasse, the survival of the business may be compromised.
The shareholders' agreement aims to establish how conflicts among the shareholders will be resolved, to put in place share buy-back clauses, voting clauses, as well as rights of first refusal in the event of a shareholder's departure. It is better to plan the "separation" with a cool head than in the heat of the moment.
What is a unanimous shareholder agreement: an essential tool for SMEs! Despite their similar terminology, the shareholders' agreement and the unanimous shareholder agreement have different objectives. A unanimous shareholder agreement seeks to return to the shareholders all or part of the powers usually vested in the board of directors.
This type of agreement is mainly useful for small and medium-sized businesses with few shareholders and where the role of the shareholders and the directors is assumed by the same people. It can, therefore, be a good idea to put this de facto situation into legal terms.
How do you create a corporation with a lawyer?
Nothing could be easier! Your business lawyer will take care of the necessary steps to incorporate your company. This involves registering the name with the Registraire des entreprises, choosing the legal regime of incorporation (federal or provincial), registering the company, and filing the incorporation documents describing the company's share capital.
Do you think a corporation is the right business structure for your business?
JuriGo can refer you to a business lawyer in your area in just a few clicks: fill out the form on this page and we will connect you to a lawyer for the incorporation of your company!
Why should you choose a partnership?
Who benefits from a general partnership? A general partnership (GP) is a contract by which several people join together in the pursuit of a common goal, which is to make a profit.
It is, therefore, an interesting legal vehicle for entrepreneurs who wish to join together without having to assume the sometimes significant costs of a corporation. However, it is important to ensure that the partnership meets your needs and expectations!
Three elements are essential to a partnership! For a partnership contract to be valid, it must have the following three elements, otherwise, the contract will not be considered a partnership:
1) The spirit of collaboration is the first of these elements and refers to the intention to group together in the pursuit of a common goal.
2) The pooling of assets is a second element that refers to the obligation of each partner to contribute to the partnership, whether in goods, knowledge, money, or property. This pooling of assets is also a transfer of ownership.
3) The sharing of profits and losses is a direct consequence of the partnership. It is possible for the partners to limit the liability of one or more of them for losses, but not in the case of company liabilities which are contracted jointly and severally between them.
Who is responsible for making decisions in a partnership?
Basically, all partners in the partnership are entitled to make decisions that affect the partnership. However, it is understandable that such a situation can quickly become problematic in the daily management of the workforce.
This is why most partnerships appoint a manager who may be one of them or a third party appointed as manager. The extent of the manager's powers will be determined by contract by the partners.
Unlike a corporation, the law does not recognize the legal personality of a general partnership. However, it does recognize a contractual personality that allows it to enter into agreements with companies, suppliers, third parties, and other business stakeholders.
What happens if the partnership goes bankrupt?
In the event of insolvency, each partner is jointly and severally liable for the debts, which means that they will be personally liable for the payment of the debts.
Despite this, the general partnership remains a preferred structure for setting up a business between experienced partners who do not wish to bear the administrative burden of a corporation.
The general partnership is also subject to registration with the Quebec Enterprise Registrar, so consult a lawyer to draft a partnership agreement in due form.
If you and your partners realize after a few years of operating a partnership that you would be better served by incorporation, the possibility is always available.
What are the conditions for converting a general partnership into an LLP with a lawyer?
LLP stands for limited liability partnership, a legal vehicle that is reserved for certain professionals who wish to join together to operate, for example, an office of lawyers, accountants, psychologists, etc.
What is the advantage of choosing an LLP rather than a general partnership?
Because the LLP is a partnership that limits the liability of the partners for the faults committed by the other partners in the exercise of their professional activities. This prevents a psychologist, for example, from being held personally liable for the fault of his or her colleague who makes the wrong diagnosis.
With this in mind, no professional whose order permits it should work under a general partnership that does not have limited liability. All you need to do is check the following three things with your professional association.
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The association must authorize incorporation as an LLP.
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The members of the association must provide security against their professional liability
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Professionals operating an LLP must declare it to their association.
Are all liabilities protected by the LLP?
No, only faults committed during professional activities are covered by the protection of the LLP. The partners remain jointly and severally liable for acts that do not fall within this category, particularly concerning the debts of the partnership.
Limited partnership: Complex structure or increased investment potential?
The limited partnership is a legal vehicle that should be known by entrepreneurs and investors alike. Professionals praise it for letting them invest in a business while limiting their liability for debts and allowing the business to obtain financing yet retain control. How is this possible?
A limited partnership involves two groups of people; the general partners and the limited partners. The general partners are those who operate the business and provide knowledge by making decisions regarding its management and staffing.
The limited partners, on the other hand, are the "contributors of funds" in that they contribute financially to the partnership and receive the agreed-upon financial benefits.
What are the rights and obligations of limited partners?
A limited partnership offers a good deal to limited partners as they are only liable for the debts of the partnership to the extent of their financial contribution, which greatly limits the potential for losses. However, they must avoid interfering in the management of the partnership or this limited liability may be lost.
The responsibilities of the general partners are greater in such a partnership as they are jointly and severally liable for the debts incurred. Although the general partners are free to manage the affairs of the partnership, they are still accountable to the limited partners for their administration.
A limited partnership allows for a public offering as it is the only form of partnership that allows for the issuance of securities to third parties in order to increase the potential for investment from the market.
The formation of a limited partnership requires the drafting of a complex and detailed partnership agreement duly registered with the Registraire des entreprises du Québec.
A JuriGo partner specializing in business law can take care of setting up your limited partnership. Contact us to get legal advice and assistance on your business requirements!
Choose the best business structure with a business lawyer!
Are you surprised by the wide range of business structures that Quebec law has to offer? This is one more reason not to take this decision lightly. In reality, the best legal vehicle is simply the one that meets the needs of your business while considering its situation!
This approach involves an analysis of your business that only a lawyer specializing in business law can provide. A decision on the architecture of your business will follow you throughout its operation so make sure you receive the best advice.
JuriGo can put you in touch with business lawyers to incorporate your business or to set up any type of business structure regardless of your location!
Contact us using the short form at the bottom of the page. Tell us about your business and what you need and we'll put you in touch with a business lawyer, free of charge!