Choice of legal form

94% of AQIII members are incorporated...

Source: AQIII Annual Survey 2021

There are five legal forms of business in Quebec, each with specific legal and tax obligations:

• the joint stock company (incorporated);
• the sole proprietorship operated by a natural person (registered);
• the cooperative;
• the association;
• the partnership (S.E.N.C.).

However, there is a strong preponderance in the industry of the company (called a corporation, incorporated or limited) as the preferred legal entity. This status, which has been growing strongly in recent years, is adopted by some 90% of AQIII members.

The massive adoption of this status is essentially explained by the fact that large clients and IT consulting firms require to do business with professionals whose companies are incorporated. Under these conditions, incorporation has become an essential criterion for obtaining contracts from these entities.

Although the formalities for incorporating a company are more complex and costly, this legal form has undeniable advantages:

• the liability of the shareholder(s) is limited to the amount they have invested in the company, unlike a sole proprietorship where the owner is fully liable;
• The tax rate is generally more favourable than for individuals thanks to the small business deduction (SBD). If the company generates significant profits, it becomes an attractive financial and estate planning vehicle.

En effet, 

• the company can defer its tax as long as it does not issue a dividend;
• a company has access to more sources of capital;
• a company has a legal personality separate from its directors and shareholders.

Set up and register your company

Once you have chosen your legal form and name, you can incorporate your business and register it in Quebec or Canada. You will then obtain a business number, which is required for all your transactions with government departments and agencies.

To set up an incorporated business, you can :

• use the services of a lawyer or an online service such as CorporationCentre or Incorpdirect (less expensive, but less personalised).
• Incorporation can be done under provincial or federal law. Unless you plan to open an office outside Quebec, provincial incorporation is the preferred option.
• Quebec Business Registry - to register your business yourself under provincial law
• Canada Business (Canadian government) - to name and register your own business

Incorporation also entails other obligations such as obtaining a company book (also known as a minute book) where information such as the issue of shares, confirmation of directors, appointment of officers and the date of the financial year end is recorded.

It goes without saying that you will then have to comply with a number of legal obligations, including the annual updating of your business register file, which is usually done when you file your tax returns.

Now that you have decided to set up your own business, you will need to find the right business structure or form of organisation for your needs. The structure of your business will depend on whether you want to run it alone or with partners or associates.