Starting a business alone
The simplest business form is sole proprietorship. If you want to operate under your last name and first name, you don’t even need to register with the Quebec Registraire des entreprises.
If you are a small supplier (currently less than $30,000 in revenue per year), you do not need to register for taxes (GST, QST). All your company’s profits, minus expenses paid, are earned by you and you will be taxed in your income tax return.
Starting a business with other people
If there are several partners, you can establish a general partnership, a limited partnership, a joint venture, an association, a cooperative, but the most common form of business vehicle in Quebec is incorporation.
It is a legal person (company or corporation) that exists by itself and has its own assets and liabilities (distinct patrimony).
Your notary can explain the pros and cons of the various forms of business and whether it is suitable for your situation.
There are several, notably some tax savings, limited liability for the entrepreneur(s), a method of managing and sharing profits and losses that is properly regulated and protected by law.
To determine whether it is more beneficial for you to be incorporated, several factors need to be taken into account. For example, do projected revenues justify the basic costs and annual costs of incorporation? Is the entrepreneur’s potential liability worth protecting? Would there be significant tax implications, and if applicable, would sharing earnings and losses be a complex matter? Your notary can carry out the necessary mathematical, financial and legal assessments to guide you in this decision.
If there are several partners, it would be to your benefit to meet with a notary so that he or she may advise you on drafting a shareholder agreement. The notary can also help you determine a number of elements, notably what would happen in the event of a disagreement or, in the event of illness or death of one of you, who would buy back the shares and at what price. This document is critical and must also be revised regularly to ensure it is up to date with changes in the company.
As far as adding or removing partners is concerned, there are minimal rules of business law on this matter, and that’s why your shareholder agreement needs to be soundly drafted.
If you operate your business through a company, the decisions made by the company, over the course of the years, will be compiled in a book or binder that we call a minutes book. This book will also contain the original copies of your articles of incorporation, including share capital details, a copy of the by-laws, the register indicating the names of the directors, another register for the shareholders.
When an exceptional transaction or event occurs within your company, e.g., sale of a major asset, secured bank financing, visit from tax authorities, arrival of a new shareholder, sale of the company, etc., they must be recorded in the minutes book. This would ensure that everything is in good standing, decisions have been properly adopted and that changes in directors or shareholders have been legitimately approved, as were the dividend payments.
If you are alone in your company (only director and only shareholder) the rules are less stringent, but as soon as there are two or more people in the business, it is crucial to have everything recorded and safeguarded. For example, if a director or shareholder has left the company, you would need documents proving it.
The notary can update the minutes book every year and keep the book in his or her vault.
In Quebec, this registration is mandatory so that the names of individuals listed under a company can be consulted at any time. So if there is more than one partner or if you are operating under an assumed name or are incorporated, you must register the company and update the registration every year.
In this case, we’re talking about freezing the value of some company shares. This can be a good option for entrepreneurs at the end of their career or who want to gradually pull out of the company. It allows entrepreneurs to retain their equity while allowing their children or younger partners to reap the future capital gains from the company. This operation must be executed properly and for good reason. Your notary can help you gain a clearer picture.
There are protective trusts, control trusts, alter ego trusts, testamentary trusts, etc. Setting up a trust may prove quite advantageous for a number of reasons, notably for tax purposes, but not in all situations. Before setting up a trust, make sure the trust setup and management costs justify it. The notary can explain and determine whether a trust is right for you.