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The different types of enterprises and legal persons

The different types of enterprises

Sole proprietorship

When a person opts to operate an enterprise on their own, it is called a sole proprietorship. A sole proprietor must be registered with the Registraire des entreprises du Québec, except if the person is doing business under their own name.

Partnership

If two or more people decide to operate a business, it is called a partnership. Partnerships are for profit. In Québec, there are three types of partnerships which are governed by the Civil Code of Québec.¹ These partnerships are established by verbal or written contract and are also called contractual partnerships. Registration is mandatory, except for joint ventures.

General partnership (G.P.)

Other than business corporations, this is the most common and best known form of partnership in Québec.

“[…] the parties, in a spirit of cooperation, agree to carry on an activity, including the operation of an enterprise, to contribute thereto by combining property, knowledge or activities and to share among themselves any resulting pecuniary profits. […]”²

In addition, under the Professional Code,³ the professionals governed by this code may form limited liability partnerships (L.L.P.).

Limited partnership (L.P.)

According to the Civil Code of Québec, “A limited partnership consists of one or more general partners who are the sole persons authorized to administer and bind the partnership, and of one or more special partners who are bound to contribute to the common stock of the partnership.”⁴

This type of partnership has two categories of partners:

the general partners, who can be natural or legal persons, who administer the partnership and consequently incur sole liability for debts and obligations to third parties;
the limited partners, who may also be natural or legal persons, who provide the contribution to the company without incurring personal liability.

Note that other differences exist, but do not need to be discussed for the present purpose.

¹ Art. 2186-2266 C.C.Q.
² Art. 2186(1) C.C.Q.
³ CQLR., c. C-26.
⁴ Art. 2236 C.C.Q.

Joint venture

This is the least restrictive of all partnerships and does not have to be registered with the Registraire des entreprises du Québec.

The partners remain owners of their respective contributions and contract in their personal names. Unlike other types of partnerships, partners are not jointly and severally liable for debts incurred in the course of their business, unless such debts were incurred for the service or operation of the joint venture. This type of partnership was previously called an expense partnership.

Sole proprietorship vs. partnership

These two types or enterprises are not incorporated companies or legal persons.

The main disadvantage of these types of enterprises is that the individuals are jointly and severally liable for the debts of the enterprise. If the enterprise is not doing well and must close, the individuals will have to pay the debts of the enterprise out of their own assets.

The people who make up these enterprises are also personally taxed on the enterprise’s income.

It is easy and very inexpensive to set up these types of enterprises. One simply needs to go to the Registraire des entreprises du Québec (REQ) and fill out the appropriate registration forms, also available on the REQ website. When establishing a partnership, drafting a written contract, although optional, can be very useful.

► DUTIES AND OBLIGATIONS OF THE BROKER

How to identify
the seller?

Who signs
the forms?

Documents to be obtained and
kept in the record

Sole proprietorship

Enter the name of the natural person.

The name under which the person does business can be added, but not used on its own.

The natural person

The seller’s ownership titles

Partnership

Enter the names of all partners doing business under the partnership name.

All partners

The partner authorized by the other partners.

The seller’s ownership titles

Information statement from the Registraire des entreprises

If applicable, the partners’ resolution authorizing a partner to sign on behalf of all

s

Legal persons

Definition

A legal person is defined as an entity endowed, under the conditions provided for by law, with a juridical personality, and therefore capable, like a natural person, of having rights and obligations.

In legal language, “legal person” is used as opposed to “natural person.” A legal person can be made up of several natural or legal persons.

Source: Grand dictionnaire terminologique – personnalité juridique

Business corporation, formerly called company

A person or persons wanting to start a business may decide to incorporate. They can choose to incorporate under the Business Corporations Act (Québec)⁵ – in which case it would be called a provincial corporation, or under the Canada Business Corporations Act, which would make it a federal corporation. Both types of companies would legal persons.

When a corporation is incorporated, the Registraire des entreprises sends the certificate of incorporation to the provisional directors. The enterprise’s legal advisors usually take care of its legal organization, as well as the preparation of the unanimous shareholder agreement, if there is more than one shareholder.

A corporation is generally composed of directors and shareholders, with different rights and obligations.

The directors are the persons who administer the corporation. In the performance of their duties, they must act with loyalty, integrity, diligence and competence, in the best interests of the corporation. They are appointed by the shareholders of the corporation. However, it is the shareholders who are the actual owners of the corporation.

The various laws governing corporations⁶ invest directors with certain responsibilities, including those relating to employee salaries, the transfer of shares if the redemption of the shares would render the corporation insolvent, dividends, GST and QST, and deductions at source.

One becomes a shareholder by acquiring or transferring shares. The term “share transfer” is often used in the case of a sale of shares or in the event of the death of a shareholder. To demonstrate that they are shareholders of a corporation, shareholders receive a share certificate which, in effect, represents their title of ownership.

⁵ CQLR, c. S-31.1.
⁶ Business Corporations Act (Québec), CQLR c. C-52; Canada Business Corporations Act, R.S.C. (1985) c. C-44; Companies Act, CQLR, c. C-38.

Legal persons other than corporations

Since legal persons are legal entities formed by statute, many other forms exist in addition to corporations. Syndicates of co-owners, which are also legal persons, are discussed in the Professional Practices Guide – Divided Co-ownership.

Enterprise registers

The Registraire des entreprises du Québec (REQ) is a public data bank. It receives, processes, maintains and disseminates the main identity information concerning associations and enterprises established or operating in Québec. It is therefore a legal publicity system for all legal forms of enterprises doing business in Québec.

This free public register was created by the Act respecting the legal publicity of sole proprietorships, partnerships and legal persons.⁷ Since January 1, 1994, any enterprise doing business in Québec has an obligation to be registered with the REQ.

► DUTIES AND OBLIGATIONS OF THE BROKER

Duty to verify

When a broker’s client is an enterprise, the broker must check the enterprise register (https://www.registreentreprises.gouv.qc.ca/en) to fulfil his duty to verify. The register will contain the following information:

Québec Enterprise Number
Exact name of the enterprise
Any other names used by the enterprise
Enterprise’s elected domicile (address of correspondence)
Date of creation (since when the enterprise has existed)
Type of enterprise, i.e. sole proprietorship (self-employed person), partnership (general partnership, limited partnership, joint venture) or legal person (business corporation)
Statute under which the enterprise was incorporated, if applicable
Enterprise’s main sector(s) of activity
Name(s) of shareholder(s)
Name(s) of director(s)
Location of the enterprise’s head office
Main establishments of the enterprise
Registered shareholder agreement withdrawing powers from the directors, if applicable
Annual declarations that have been filed
Status of the enterprise (e.g. if dissolved and since when)
Information regarding the enterprise’s ultimate beneficiaries

⁷ CQLR, c. P-45.

Other registers

A corporation may have been incorporated under the federal system or that of another province. It may also be a foreign corporation which, having no place of business in Québec and not doing business there, has no obligation to register in Québec. Consequently, it will not appear in Québec’ enterprise register.

Federal register

It may happen that a federally incorporated company does not appear in the Québec register, for example if it no longer has a place of business in Québec. In this case, Industry Canada’s register can be consulted for a federally incorporated company, regardless of the province in which it is located.

Sources:

Canada Business Corporations Act⁸
Canada Not-for-profit Corporations Act⁹
Canada Corporations Act – Part II¹⁰
Special Act of Parliament
Boards of Trade Act – Part I¹¹
Boards of Trade Act – Part II¹²
Canada Cooperatives Act¹³
Pension Fund Societies Act¹⁴

⁸ R.S.C. (1985), ch. C-44.
⁹ S.C. 2009, ch. 23.
¹⁰ S.R.C. 1970, ch. C-32.
¹¹ R.S.C. (1985), ch. B-6.
¹² R.S.C. (1985), ch. B-6.
¹³ S.C. 1998, ch. 1.
¹⁴ R.S.C. (1985), ch. P-8.