Establishing a business in Canada (Québec)
A Q&A guide to establishing a business in Canada (Québec).
This Q&A gives an overview of the key issues in establishing a business in Canada (Québec), including an introduction to the legal system; the available business vehicles and their applicable formalities; corporate governance structures and requirements; foreign investment incentives and restrictions; currency regulations; and tax and employment issues.
To compare answers across multiple jurisdictions, visit the Establishing a business in... Country Q&A Tool.
This article is part of the global guide to establishing a business worldwide. For a full list of contents, please visit www.practicallaw.com/ebi-mjg.
Originally a French colony, Québec was later conquered by the United Kingdom. As a result, while the province's legal system is based on the Civil Code of Québec for private law matters (for example, contracts and property), Québec courts are influenced by the common law doctrine of precedent in their decisions.
A wide variety of business vehicles can be used to carry on a business activity in Québec. Commonly used business vehicles include:
Limited partnerships (see Question 5, Limited partnerships).
Trusts (see Question 7).
Joint ventures (see Question 6).
Sole proprietorships. These are generally used for small investments. The owner of such a business has sole responsibility for carrying on the business and is personally liable for its debts and obligations. However, the sole proprietor can set off the business losses against his or her personal income. In the first stages of a business, a sole proprietorship may be preferable to incorporation. Sole proprietors must consider that their personal liability is not limited as it would be with a corporation.
The appropriate business vehicle form depends on the:
Nature of the activity to be conducted.
Identity and priority of the investor(s).
Method of financing.
Income tax planning.
Potential liabilities of the business and the principals engaged in the business.
A corporation is the most common method of carrying out a business in Québec because:
It offers limited liability to shareholders.
It has most of the powers of a natural person.
The securities of a corporation are generally more readily marketable than an interest in a partnership, joint venture or trust.
An investor who decides to use a corporation to carry on its business in Québec usually incorporates under either:
Canada Business Corporations Act (federal incorporation).
Québec's Business Corporations Act (provincial incorporation).
While these laws are similar in many respects, there are some important differences. The federal law requires at least 25% of the directors to be Canadian residents (see Establishing a business in Canada, Question 2). In contrast, there is no Canadian residency requirement for directors under Québec law.
Existing foreign corporations can also operate in Québec without incorporating a subsidiary by establishing a branch office (see Question 4, Branch office).
Establishing a presence from abroad
One of the first issues faced by a foreign entity considering carrying on a business in Québec is whether to conduct business directly in Québec as a Canadian branch office (see Question 4, Branch office) or to create a separate Canadian subsidiary. This choice is generally dictated by the following considerations:
Canadian and foreign tax treatment.
Availability of government incentive programmes.
In addition to a subsidiary or a branch, foreign companies can also establish a business presence through a franchise, licence, partnership or joint venture (see Questions 4, Franchise and Licence, 5 and 6).
Foreign companies have a variety of means to trade directly in Québec. Most companies choose to establish a subsidiary or a branch office, while others may choose a franchise or licence model.
A branch office must register as an extra-provincial entity at the corporate registry to carry on business in the province. In order to do so in Québec, a foreign company must either:
Have a place of business in Québec.
Ensure the continuing appointment of an agent for service in Québec. Law firms often act as an agent for this purpose.
Franchising generally refers to a business structure under which an investor can market a specified product or service in a particular location using an existing trade mark. Initial training and ongoing support are usually provided by the franchisor. Some of the advantages for a new investor in purchasing a franchise may include the following:
Established goodwill (under the trade mark).
A standard product.
There are also many advantages for a franchisor marketing and selling products through franchisees.
The parties enter into a franchise agreement which sets out the relationship between the franchisor and the franchisee, usually includes matters such as the assistance that the franchisor will provide to the franchisee, and where and how the products or services can be marketed.
Unlike some other Canadian provinces, Québec has not enacted any franchise legislation.
Another common method of carrying on business is through licensing. Licences are similar to franchises, although they are usually less complex. Licences can include the right to use trade marks, technology, know-how and patents. As with franchises, there may be numerous advantages for both parties to a licence agreement. For example, the licensor may obtain relatively inexpensive market access to a geographical area and the licensee can gain access to proven technology and products.
There are two main types of partnerships under the Civil Code of Québec (CCQ):
Limited liability partnerships also exist and are usually used by professional partnerships (such as law or accounting firms).
A foreign corporation can enter into a partnership to establish a business arrangement with another person or corporation. The result of setting up such a partnership is that the income or loss of the business is calculated at the partnership level, as if the partnership did not exist. The resulting net income or loss will then flow through to the partners and be taxable in their hands, in accordance with their capital interests in the partnership. Partnerships are not taxable entities for the purpose of calculating Québec tax obligations.
A general partnership is a relationship between two or more parties, who can be natural persons or corporations, jointly engaged in a business. Almost all partnerships with significant assets or operations have written partnership agreements that govern relations between the partners, including their capital interests, the operation of the business and the distribution of profits and losses. In a general partnership, all partners are jointly responsible for its liabilities and can actively take part in the management of the business.
The CCQ contains rules of public order (mandatory provisions) that apply to contractual partnerships. For example, a general partnership agreement cannot exclude one of the partners from participating in the profits of the partnership or from participating in collective decisions.
The CCQ requires general partnerships and other entities to register by providing a registration declaration as prescribed by the Act Respecting the Legal Publicity of Enterprises (Publicity Act), failing which the general partnership is deemed to be an undeclared partnership. The corporate registrar (Registraire des Entreprises (REQ)) has authority to refuse to register a partnership's name if the name does not comply with certain provisions of the Publicity Act, for example, if the name:
Does not comply with the provisions of the Charter of the French Language.
Contains a phrase that the law reserves for another person, or that the registrant is prohibited from using.
A limited partnership must have at least one general partner who manages the business and is liable for its debts and obligations. The general partner can be a corporation or a natural person. All other partners can be limited partners. A limited partner's liability is limited to the extent of its investment in the limited partnership. Limited partnerships are often used for investment purposes, where a majority of the partners do not wish to be involved in the management of the business. Limited partners are not entitled to participate in the management of the limited partnership. The partners' share of profits and other management and operational matters are governed by a limited partnership agreement.
As with general partnerships, the limited partnership must register its business name and comply with the registration requirements set out in the Publicity Act (see above, General partnerships).
Limited liability partnerships
In a limited liability partnership, individual partners retain liability for their own acts and omissions. There is no general partner as in limited partnerships. In Québec, limited liability partnerships are often formed by members of a profession (such as accountants and lawyers). These partnerships are bound by certain rules set out in the CCQ (mainly those applicable to general partnerships) and Québec's Professional Code.
There is no distinct legal entity known as a joint venture in Québec. The term joint venture is generally used to describe either:
An unincorporated business association between individuals or corporations.
A jointly-owned and controlled corporation.
Unincorporated joint ventures are often used for mining and land development projects.
Unincorporated joint ventures
A joint venture is a business relationship similar to a partnership that has different tax treatment due to the specific characteristics of the business being carried on. The co-venturers should enter into a joint venture agreement to show that the business association is a joint venture rather than a partnership. Each co-venturer usually retains ownership over the assets that it contributes to the joint venture. On termination of the joint venture, each party can take back its own assets.
A significant difference in tax treatment between a partnership and a joint venture is that co-venturers are taxed separately, not jointly. However, as in partnerships, the joint venture agreement usually sets out the co-venturers' rights and obligations, and provides for the sharing of profits and losses. As a joint venture is not a distinct legal entity, it cannot sue or be sued; such rights and liabilities only attach to the individuals or entities involved in the joint venture.
Incorporated joint ventures
A corporation that is jointly owned and controlled is often referred to as a joint venture. The shareholders will want to set out their rights and obligations in a shareholders' agreement. For example, each shareholder may be given the right to appoint a certain number of directors to the board or to veto major decisions of the joint venture. Such agreements usually also include provisions restricting the transfer of shares as well as pre-emptive subscription rights and rights of first refusal. This type of joint venture does not permit individual shareholders to be taxed separately as in the case of unincorporated joint ventures. Instead, tax is calculated and paid by the joint venture corporation itself.
Certain investment activities in Québec are carried on through trusts as vehicles for real estate investments. Establishing a trust structure as a vehicle for investment in Québec requires specialised tax structuring advice.
The answers to the following questions relate to private limited liability companies (or their equivalent).
Forming a private company
The governance framework and various rules for corporations are set out in the relevant corporate statute. The provisions relevant to businesses incorporated under Québec law are included in Québec's Business Corporations Act (QBCA).The corporate registrar oversees the registration of business carried on in Québec.
For more information on the regulatory authorities for businesses in Québec see box: The regulatory authorities.
Tailor-made or shelf company
Numbered companies or shelf companies are available in Québec. Numbered companies can generally be used for the same purposes as named entities and are often used as holding companies.
A corporation in Québec can be constituted by one or more founders. Any individual who is qualified to be a director or a corporation can be the founder of a new corporation.
The following documents and fees must be filed to incorporate a corporation in Québec under the QBCA:
Articles of incorporation.
A notice establishing the head office and a notice containing the list of directors. However, filing the initial declaration for a legal person can be used as an alternative to these two notices.
A declaration stating that reasonable means have been taken to ensure that the name chosen is in compliance with the law must also be filed, unless a designating number has been requested as corporate name.
Filing fees of approximately Can$326 (or Can$489 for priority service), plus legal fees and other disbursements.
These documents are usually prepared by a law firm, based on directions given by the investor.
If the corporation is not a numbered company, its proposed name must be approved by the corporate registrar. Under the French Charter, a corporation's name must be in French, although it can also have a version of the name in another language. The corporate registrar can reserve a name for a period of 90 days.
Québec companies are incorporated by filing articles of incorporation with the provincial corporate registrar. Companies also usually have a general bye-law setting out various governance matters to complement or, in some cases, override those contained in the corporate statute. It is not necessary to file the bye-laws with the articles. Private companies with multiple shareholders often have a shareholders' agreement setting out the rights of shareholders in more detail.
Companies operating in Québec are not generally required to publicly file any financial reports unless they are a "reporting issuer" (that is, an entity that has offered its securities to the public in Canada). Reporting issuers must publicly file audited annual financial statements and unaudited quarterly financial statements under provincial securities legislation.
All companies must file annual tax returns with the Canada Revenue Agency (CRA) and Revenu Québec. A branch office in Québec must also file an annual income tax return with the CRA and Revenu Québec. However, a branch is only subject to taxes in Québec and Canada on the income attributable to its Canadian operations.
A corporation can only carry on business or identify itself using either its corporate name or another name that it has registered as a trade name. Corporations in Québec must display a registered name in all contracts, invoices, negotiable instruments and orders involving goods or services issued or made by the corporation. For information about certain federal requirements, see the corresponding question in the Canada Guide.
A company's bye-laws usually indicate who can execute documents (for example, they can require two officers to sign a contract to bind the company). Otherwise, the board of directors can delegate signing authority by way of resolution. Companies can adopt a corporate seal to execute deeds or contracts, although this is not a legal requirement and is not common practice.
Under Québec's Integrity in Public Contracts Act, a business wishing to enter into a public contract valued at more than a certain threshold must receive the authorisation of the Québec's securities commission (Autorité des Marchés Financiers). The threshold varies depending on the public entity granting the contract, but is generally Can$5 million (Can$100,000 in case of contracts with the City of Montreal).
Minimum capital requirements
Shareholders and voting rights
For the oppression remedy, see Establishing a business in Canada, Question 15.
Minority shareholders also benefit from the dissenting shareholders' right of redemption. If a minority shareholder records its dissent with certain significant changes to the corporation, as specified in the Québec's Business Corporations Act, the shareholder can request that the corporation repurchase its shares at their fair value.
Unless the company's bye-laws provide otherwise, a quorum of shareholders is present at a meeting of shareholders if the holders of a majority of the shares entitled to vote at the meeting are present in person or represented by proxy, regardless of the number of persons actually present at the meeting.
Quorum and voting rights are proportionate to shareholdings, unless the bye-laws provide otherwise.
The Québec's Business Corporations Act requires a special resolution of shareholders (that is a two-thirds majority vote at a meeting, unless a written resolution is signed by all shareholders entitled to vote) for certain fundamental changes to a corporation, including:
Amendments to its articles (including a change of name or modifying the share capital).
Changing the location of its head office (if the new location is in another judicial district).
Share consolidations or splits.
Selling all or most of its assets.
Continuing its existence under another corporate statute.
Dissolution of the corporation.
Merging with another corporation.
Foreign investment restrictions
There is no general restriction on foreign ownership of real estate. However, a foreign corporation owning property in Québec must be registered in the Province of Québec. Foreign individuals are not subject to any restrictions or registration to own or occupy real estate in Québec. There are no legal restrictions on foreign guarantees or security for ownership or occupation of real estate.
Québec law does restrict ownership of agricultural land by non-residents of the province. Subject to limited exceptions set out in the Act Respecting the Preservation of Agricultural Land and Agricultural Activities, any such acquisition requires the approval of the Commission for the protection of agricultural territory of Quebec (Commission de protection du territoire agricole du Québec).
Companies in Québec have a unitary board structure and there are no two-tiered boards. They can, however, put in place an advisory board with no formal legal role or authority or sub-committees of the board.
Number of directors or members
Private companies in Québec must have a minimum of one director.
Public companies must have a minimum of three directors, two of which must not be officers or employees of the corporation or its affiliates. A Québec corporation can have an unlimited number of directors and officers.
Employees do not have a statutory right to board representation in Québec and such a right is very uncommon, even under collective bargaining agreements.
Reregistering as a public company
Securities regulation in Canada falls under provincial jurisdiction and in Québec it is the responsibility of the Québec's securities commission (Autorité des Marchés Financiers). The various provincial securities commissions have together formed an umbrella organisation, the Canadian Securities Administrators, through which they co-ordinate their activities and develop uniform regulations. As a result, the rules governing publicly-traded companies are generally similar in each Canadian province. Publicly-traded companies are also subject to the rules and policies of any stock exchange on which their securities are listed for trading.
For more information, see Establishing a business in Canada, Question 25.
Businesses in Québec are subject to the following taxes:
Corporate income tax. The rate of Canadian tax payable by a corporation on its profits depends on:
whether its shares are controlled by Canadian residents;
the level of income; and
the type of activity or investment carried on by the corporation.
Provincial income taxes are levied by each province on income derived by a corporation from business activities carried on by a permanent establishment in the province. The combined federal and Québec corporate income tax rate for non-Canadian controlled corporations is 26.9% in 2016. Different rates apply to Canadian-controlled corporations (that is, corporations which are not controlled by non-residents, public companies or a combination of both).
Branch tax. A branch is not a separate legal entity, so there are no immediate tax consequences when it is created. A branch of a foreign corporation is usually subject to tax at ordinary Canadian tax rates for profits earned by the branch. The calculation of income subject to tax and the tax rates for branch operations are the same as for Canadian corporations. In addition to normal Canadian corporate tax, the net after-tax income earned by the branch operation, after a reduction for amounts invested in Canadian property, is subject to a federal (and not provincial) branch tax payable in each taxation year. Canadian branch tax is designed to approximate the withholding tax payable on dividends paid by a Canadian corporation to a non-resident shareholder. The branch tax is payable in the year in which profits are earned, regardless of whether the profits are retained in Canada or remitted to the foreign country. The withholding tax rate on dividends and branch tax under the Income Tax Act is 25%. However, this rate is generally reduced to 10% or 15% by the applicable tax treaty.
Sales tax. A 5% federal goods and services tax applies in Québec under federal law and a 9.975% Québec sales tax applies under provincial law. Businesses in Québec report to the Québec tax authority (Revenu Québec) only in respect of the goods and services tax and the Québec sales tax.
Investment income taxes. Foreign investment into Canada that does not constitute carrying on business by the non-resident is subject to certain federal (but not provincial) tax consequences. For more information, see Establishing a business in Canada, Question 26.
See Establishing a business in Canada, Question 27.
A corporation resident in Canada is also generally subject to the corporate income tax of the Province of Québec, provided it has an establishment in the province. The amount of income taxes payable by such a corporation to the Québec establishment is determined by a formula based on the gross revenue and salaries.
Grants and tax incentives
The Québec government offer a wide variety of grants and tax incentives to businesses in Québec, including:
Research and development tax credits. These are available in almost all provinces and at the federal level; generally up to 15% of eligible expenses at the federal level and between 17.5% and 37.5% in Québec, depending on the type of eligible expenses. Québec's budget for 2014/2015 announced a decrease in these tax credits of between 14% and 30%.
Employer tax credits. Refundable tax credits are available to:
employers that hire and train apprentices in certain skilled trades; and
employers that create a licensed child care facilities; and small businesses that hire new employees.
Industry-specific tax credits. Different industries can receive favourable tax treatment, such as film or multimedia tax credits in Québec.
With the exception of federally-regulated industries, such as banks, telecommunications, railways and airlines, employment relationships in Québec are governed by provincial law. For more information on the requirements applicable to federally-regulated businesses, see Establishing a business in Canada, Question 31.
The sources of the provincial employment and labour law in Québec are the Civil Code of Québec (CCQ) and various statutes. From an employer's perspective, the most important of these statutes are the following:
Employment standards (labour standards) legislation. This legislation sets out the basic terms and conditions of employment, including rules on hours of work, minimum wages, mandatory holidays, public holidays and overtime. Quebec's Act Respecting Labour Standards contains the minimum employment standards that are applicable to employees in the province, and considers the differences concerning employees, managerial personnel and senior managerial personnel. Under certain conditions, employees and managerial personnel can file complaints claiming reintegration after dismissal without just and sufficient cause. To satisfy the conditions, an employee must have worked for the same enterprise for two years or more and file a complaint within 45 days of the dismissal.
Workers' compensation legislation. This legislation creates a no-fault insurance system for workplace injuries. Under this legislation, employers generally pay premiums into a fund from which injured workers receive compensation to replace their wages when they are absent from work due to an injury. Covered workers are usually prohibited from suing their employers for injuries covered by the legislation. Québec's Act Respecting Industrial Accidents and Occupational Diseases compensates workers, in some cases, for economic and non-economic losses resulting from work injuries and illnesses.
Human rights legislation. This legislation prohibits employers from discriminating against their employees or potential employees on a number of grounds including sex, race, age, disability and sexual orientation. In Québec, the Charter of Human Rights and Freedoms protects employees' fundamental rights and freedoms. Under this legislation prohibited grounds of discrimination that employers must consider when making employment decisions include:
Occupational health and safety legislation. These laws regulate workplace safety by imposing obligations on a variety of parties in the workplace. In Québec, these requirements are governed by the Act Respecting Occupational Health and Safety and the CCQ. The CCQ requires Québec employers to take measures to protect the health, safety and dignity of employees.
Labour relations legislation. This legislation regulates the status of labour unions and their relationships with employees and employers. Labour relations in Québec are subject to the provisions of the Labour Code. Québec's Labour Code protects the right of association and contains, among other things, rules permitting a union to be certified to represent a group or all employees of a business, rules pertaining to the negotiation of a collective agreement, and rules concerning the settlement of disputes and grievances.
Benefits-related legislation. Québec law regulates private pension plans and provides comprehensive, government-funded health insurance schemes for residents. Many employers provide supplemental medical, dental, life insurance, disability and other benefits to employees, although these are not required by law. For more information on the federal government's unemployment insurance plan, see Establishing a business in Canada, Question 31.
Privacy legislation. The collection, use, retention, storage and disclosure of personal information, which can include personal information of or about employees, is regulated in Canada by both federal and Québec law. The protection of personal information in Québec is subject to the provisions contained of the CCQ and the Act Respecting the Protection of Personal Information in the Private Sector.
Pay equity. In Québec, men and women doing the same job must receive equal remuneration. The Pay Equity Act imposes certain obligations on employers with ten employees or more and additional procedural obligations for larger employers.
French Charter. Under the French Charter collective agreements (including annexes and schedules) must be drafted in French. An English version can also be drafted in addition to the French version. Contracts that are pre-determined by one party, contracts that contain standard clauses, and their related documents must also be drafted in French, unless the parties expressly request otherwise. Generally, a clause to that effect is included in English language contracts.
With respect to permanent residence, Québec has the authority to choose its own immigration streams. The province administers its own point-based Skilled Worker programme, where an applicant's eligibility for permanent residence is based on the calculation of merit points for the applicant's age, education, work experience, adaptability, having a permanent job offer in Québec, and French or English language proficiency.
In addition, Québec continues to administer its unique Business Immigration initiatives, Immigrant Investor Program and Immigrant Entrepreneur Program. At Can$1.6 million net assets and an investment amount of Can$800,000 to be invested in Québec for a five-year period, the financial eligibility threshold for programme participation in the Québec Immigrant Investor Program remains relatively low compared to other global immigrant investor destinations. Other programme conditions, such as two years of experience in managing a business, must also be met.
In addition to the rules set out above, foreign nationals who wish to work in the province must also comply with the federal government's requirements. For more information, please see the corresponding question in the Canada Guide.
Proposals for reform
For the information on the national securities regulator and changes to the take-over bid regime, see Establishing a business in Canada, Question 33.
The regulatory authorities
The regulatory authorities
Main activities. Revenu Québec regulates provincial taxation and collects the goods and services tax and the Québec sales tax.
Quebec's securities commission (Autorité des marchés financiers)
Main activities. Quebec's securities commission regulates Québec's financial markets and enforces Québec's Securities Act and its regulations.
Canadian Legal Information Institute
Description. This website is maintained by the Federation of Law Societies in Canada and provides no-charge access to up-to-date Canadian legislation and case law, including with respect to the Province of Québec.
The Canadian Legal Information Institute
Description. Maintained by the Federation of Law Societies in Canada, this is a free online resource for up-to-date official Canadian legislation and case law, including Quebec.
Adam Allouba, Partner
BCF Business Law
Professional qualifications. Attorney, New York Bar, 2006; Québec, 2006
Areas of practice. Business law; commercial law; corporate law; securities; competition law; foreign investment, mining law; internet law.
Didier Culat, Legal Counsel
BCF Business Law
Professional qualifications. Attorney, Québec, 1993
Areas of practice. Business law; commercial law; corporate law; banking law; financial services; intellectual property; securities; internet law.
Gilles Seguin, Partner, Vice-Chairman of the board
BCF Business Law
Professional qualifications. Attorney, Québec, 1982
Areas of practice. Business law; commercial law; corporate law; securities law; mining law.