Operating a Corporation in Quebec

Quebec companies can be structured in different ways. These include sole proprietorships, partnerships and corporations.

Corporations are a popular choice among Quebec entrepreneurs. But what is a corporation and how exactly does this business structure work? What are its benefits?
Find out more below.

Corporations at a glance

Note that some Quebec materials use the more general term “company” when they are referring to corporations specifically. Make sure to read these texts carefully and look for context clues.

Corporations from a legal standpoint

A corporation is one of the possible legal business structures in Quebec. It differs from other legal entities in that the corporation is considered a legal person. This means that it is its own "person" under the law and is distinct from its officers and shareholders. 

This legal standing gives the corporation several rights that are not granted to other companies that adopt a different legal structure. For example, a corporation can sign contracts in its own name, own various assets or even sue or be sued by someone else.

Running a corporation

Generally, corporations are run by multiple owners whose percentage of ownership is proportional to the number of shares they own.

Publicly traded corporations have more complex structures and procedures and often have high administrative costs.

Corporation accounting

Tracking revenue and expenses and managing a corporation’s cash flow is usually done in-house by corporate accounting professionals.

That said, it is not uncommon for corporations to seek outside support.

Corporate taxation

Corporations are subject to progressive tax rates, meaning that the tax rate increases as the company's income increases.

Federal, provincial and municipal taxation authorities establish these business tax rates.

Federal vs. provincial corporations

It is important to distinguish between a federal corporation and a provincial corporation as they operate somewhat differently.

Jurisdiction

A corporation incorporated and registered in Quebec may have to register, file certain returns or pay certain fees to do business in other Canadian provinces or territories.

Note that at least 25% of a federal corporation’s directors must be Canadian residents.

The rule regarding corporation headquarters is relatively straightforward. A federal corporation’s headquarters must be located in one of the Canadian provinces or territories, whereas a provincial Quebec corporation must have their headquarters permanently located in Quebec.

Name

Quebec-registered corporations must list their name in French. However, they can use a name in another language for operations outside of Quebec.

Federal corporations can be incorporated under an English or French name, but must use a French name when doing business in Quebec.

And finally, the “name reservation” process is mandatory for federal corporations, but not for provincial corporations.

The main benefits of the corporation structure

Now that you know a bit more about corporations, you probably realize that this legal business structure comes with a number of advantages. Some of the main benefits of choosing this structure for your business include:

Tax deductions

One of the main considerations that encourages entrepreneurs to incorporate their SME is the fact that corporations benefit from a better tax rate. In Quebec, incorporated SMEs are granted certain deductions at the provincial and federal levels. 

However, tax rates and deductions may vary according to certain criteria. To benefit from this advantage as much as possible, SMEs often use corporate tax services to optimize their tax planning.

Less financial responsibility for shareholders

The shareholders of a corporation own shares in that company, which makes them the proprietors. It might be logical to think that these shareholders hold a great deal of the company's fiscal and financial responsibility.

But this is not the case—they actually have much more limited responsibility. Since a corporation is its own legal entity, the majority of the responsibility belongs to the company itself. Shareholders are therefore highly protected because their personal liability is limited to the value of their shares.

For example, the owners are not liable for the corporation’s debts, meaning that their personal assets are protected from the corporation’s creditors.

The possibility to share corporate income

The Business Corporations Act makes it possible to split the corporation’s income among the shareholder’s family members. However, this can only be done under certain circumstances and via certain means, including:

• Paying salaries
• Paying bonuses
• Issuing shares
• Paying dividends

Accumulating earnings and using them later

Corporate directors may decide to pay only a portion of the dividends to their shareholders to let the earnings accumulate in the company. They can then pass these dividends to shareholders when it’s most convenient for their business objectives.

Board of directors exemption for provincial corporations

The shareholders or sole shareholder of a provincial corporation may, under certain conditions, decide not to establish a board of directors or to abolish the existing board. This decision would simplify the company’s internal operations.

If there are multiple shareholders, they must enter into a “Unanimous Shareholder Agreement.” A sole shareholder would need to produce a “Declaration of the Sole Shareholder.”

Simplified business financing

Corporations also benefit from a greater variety of business financing methods. They can either borrow money from the bank or issue shares and bonds.

In order to issue new shares, a corporation must obtain the permission of the Autorité des marchés financiers. Once obtained, the company can receive funds without having to reimburse them or pay interest.

Continuity of existence

A corporation continues to exist until it is dissolved or acquired by another company. If the owners or shareholders die, the corporation lives on.

Enjoy the benefits of incorporating your business

A corporation is therefore a corporate legal structure whereby a company becomes its own legal person. This type of company has several benefits, both for the company itself and for its shareholders. 

Now that you know more about corporations, why not incorporate your SME? At T2inc, we can assist you throughout your business’ incorporation process and provide you with our best accounting and tax advice.

Contact us today to get a free quote!