10.01.2021
Corporate tax
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Starting a business in Quebec is no small matter.

There are many different factors to consider before you start a business, regardless of whether it will be for profit or not.

One of the most important steps in starting a business is choosing your business structure.

Every legal business structure has its own characteristics and tax implications. You therefore need to inform yourself well to choose the structure that is most beneficial for you depending on the type of business you want to run.

Here is a list of the main business structures in Quebec to help you make the right decision.

Different types of business structures in Quebec

The term "corporation" is often used to describe an incorporated business. While this is correct, there are other types of businesses that are not necessarily corporations.

Corporations in Quebec (incorporated companies)

Corporations, also called incorporated companies, are a type of business structure with specific rights and characteristics.

To operate in Quebec, a corporation must carry out a business incorporation. It must therefore be registered with the Registre des entreprises du Québec and make a declaration of registration of a legal person. This means that the company becomes distinct from its shareholders and managers. It therefore legally has its own name, obligations and responsibilities and can own property.

In this sense, a corporation's shareholders do not own the business itself, but rather the shares they possess. They can receive a portion of the company's profits in the form of  stock dividends or cash.

Shareholders benefit greatly from this legal business structure since they personally have no tax or liabilities.

The shareholders are also responsible for electing a Board of Directors to manage the company.

Corporations incorporated under the Canada Business Corporations Act

Unlike corporations in Quebec, corporations incorporated under the Canada Business Corporations Act can do business anywhere in the country.

Certain conditions must be met to create this type of business. First, the company's head office must be located in Canada. In addition, at least 25% of its board of directors must be Canadian residents.

General partnerships

General partnerships are a group of people who partner together to operate a business collaboratively. This means that the partners pool assets, knowledge and activities. They also share potential profits and losses among themselves.

Just like a corporation, a general partnership has its own name and is entitled to sue and be sued. However, it is not considered a legal person.

This business structure is often used by start-ups because it is slightly less expensive than a corporation. However, the partners of a general partnership are fully responsible for the debts and tax obligations of the business. This results in greater personal risk.

Limited partnerships

Limited partnerships are made up of one or more general partners and one or more limited partners who partner for profit. The limited partners provide a financial contribution to the common funds of the partnership.

This legal business structure is mainly adopted by businesses who operate in an area with a high risk of loss, such as the professional sports sector.

A limited partnership has some of the same characteristics of a legal person but is not legally considered one.

Other legal business structures in Quebec

There are also several other legal business structures in Quebec. Each of them has its own characteristics and implies different taxation considerations.

Sole proprietorships or self-employed workers

A sole proprietorship is operated and managed by a single person with the title "self-employed worker" or "independent contractor.”

By law, a sole proprietorship is not separate from its owner. The self-employed worker therefore bears all financial responsibilities and obligations of their business. All profits belong to them, but they also suffer all potential losses.

Cooperatives

Cooperatives are formed by groups of companies or individuals who have a common need or interest, whether economic, social or cultural. Cooperatives are legally considered to be legal persons. They therefore need to be registered in the Registre des entreprises du Québec.

Each member of a cooperative has equivalent decision-making power. Members can decide how they wish to share the benefits of the cooperative.

Associations

An association is a legal business structure created by a group of people who have an interest other than making a profit. However, an association can make money, as long as the funds are not used to pay members of the business.

The association structure is often adopted by companies that have a more social mission, such as promoting research in a community.

There are two types of legal associations in Quebec: the incorporated association and the contractual association. The former is considered a legal person, but the latter is not.

Non-profit organizations (NPOs)

A non-profit organization (NPO) is considered a legal person. An NPO must carry out its activities for a social, educational, religious, philanthropic, sports or other purpose. No profit may be distributed to members of an NPO.

An NPO is governed by a board of directors. Since an NPO has no shareholders, the members of the board are elected by the members of the organization at the general meeting.

Registered charities

A registered charity can be a corporation, trust or unincorporated association. A registered charity is also required to be registered as a charitable organization, public foundation or private foundation under the Canadian "Income Tax Act".

Registered charities are part of a group of organizations called "qualified donees". This gives them the right to issue receipts to their donors for tax purposes. In addition, registration allows registered charities to avoid paying income tax.

Knowing the different business structures to better understand tax implications

That completes the main types of business structures in Quebec. Each of them has its characteristics, advantages and disadvantages. It is important to become familiar with each of these options so that you can choose the one with the most beneficial tax implications for your business.

Do you think that one of these legal business structures is the right choice for your company?

The experienced tax accountants at T2inc can offer personalized support in all areas of your company’s taxation.

Get a free quote today to benefit from T2inc’s advantages!

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