2. Forms of Business Ownership (Part I)

Question 1

What is a sole proprietorship?

Answer 1

An enterprise or a business venture by one single individual

Question 2

What does it mean to conduct business?

Answer 2

• Offer goods & services
• More than one transaction

Question 3

Who must register with the Registraire des Entreprises? (sole proprietorship)

Answer 3

Mandatory registration if using a business name (s. 21(1) ALPE)

Optional registration registration if using first & last name (s. 21(1) ALPE)

*Exception: registration mandatory if operation tobacco retail sales outlet or an artificial tanning salon (ss. 21 para. 2(1) & para. 2(2) ALPE)

*Optional registration for natural persons using a pseudonym in pursuit of an artistic, literary or other cultural activity (s. 23 ALPE)

Question 4

Where can we find the requirements to select a business name? (sole proprietorship)
Name a few.

Answer 4

s. 17 ALPE

Look at image for criteria.

Question 5

SP: Start-up
When must the declaration of registration be submitted?

Answer 5

Declaration of registration must be filed no more than 60 days after the date on which registration becomes compulsory - s. 32 ALPE

Declaration of registration must be filed no more than 30 days after the date of which registration becomes compulsory in the case of a tobacco retail sales outlet or an artificial tanning salon*
* The 30 day registration requirement is found in the Tobacco Control Act and the Act to prevent skin cancer caused by artificial tanning, respectively
The declaration must be updated annually, even if there are no updates - s. 45 ALPE

Question 6

SP: Start-up
What information must be stated in the registration declaration?

Answer 6

Detailed in s. 33 of ALPE

Look at image for details.

Question 7

SP: Start-up
How much does registration cost?
What is the annual registration fee?
What is the fee to update the annual declaration?

Answer 7

How much does registration cost?
$37 (regular) OR $55 (priority)

What is the annual registration fee?
$37

What is the fee to update the annual declaration?
No cost OR $18.50 (priority)

Question 8

Discuss liability when it comes to a sole proprietorship.

Answer 8

There is no distinction in law between the sole proprietor and their business

The sole proprietor is responsible has unlimited personal liability for all debts

Question 9

Discuss ownership of the sole proprietorship.

Answer 9

The sole proprietor owns 100% of their business

Question 10

Discuss profits of the sole proprietorship.

Answer 10

The sole proprietor is entitled to all the profits

Profits are considered personal income and are taxed as such

Question 11

Discuss management in the sole proprietorship.

Answer 11

The sole proprietor has complete managerial control over their business

Question 12

Discuss the transfer of ownership in the sole proprietorship.

Answer 12

Ownership of a sole proprietorship cannot be transferred, BUT the assets can be sold

Question 13

Discuss the termination of a sole proprietorship.

Answer 13

• Terminates when the owner dies
• Terminates when the owner stops doing business
• Must file a declaration of cancellation (no cost - regular; $18.50 - priority)

Question 14

Enumerate the advantages and disadvantages of the sole proprietorship.

Answer 14

Advantages:
- Simple start-up
- Low start-up costs
- Easy to dissolve
- Complete control

Disadvantages:
- Unlimited liability
- Lack of continuity
- Financing difficulties
- Goodwill difficulties

Question 15

What is a partnership?

Answer 15

An enterprise or a business venture by two or more individuals.

Question 16

Part.: Start-up
Who must register?
What information must be stated in the registration declaration?
When must the declaration of registration be submitted?

Answer 16

Who must register?
Partnerships must file a declaration of registration
- s. 21(2) ALPE (see also art. 2189 of the CCQ)

What information must be stated in the registration declaration?
See ss. 33 and 34 of the ALPE

When must the declaration of registration be submitted?
Same timeframe as discussed for the sole proprietorship

Question 17

Part.: Start-up
How much does registration cost?
What is the annual registration fee?
What is the fee to update the annual declaration?

Answer 17

How much does registration cost?
$56 (regular) OR $84 (priority)

What is the annual registration fee?
$56

What is the fee to update the annual declaration?
No cost OR $28 (priority)

Question 18

Discuss partnership liability.

Answer 18

No distinction in law between the partners and the business

The partners have unlimited liability for the debts of the partnership

The partners are solidarily liable for the debts of the partnership (art. 2221 CCQ; see also art. 1523 CCQ)

The partners may come to an agreement that a given partner is not responsible for the debts of the partnership, but such an agreement is not enforceable against creditors (art. 2203 para. 2 CCQ)

Question 19

Discuss ownership when it comes to a partnership.

Answer 19

The division of ownership is determined by the partners

The division does not have to be equal

Unless specified otherwise, it is presumed equal (art. 2202 CCQ)

Question 20

Discuss the profits of a partnership.

Answer 20

No partner can be excluded from sharing in the profits (art. 2203 CCQ)

The share of profits is divided equally, unless specified otherwise (art. 2202 CCQ)

Profits are considered personal earnings and are thus taxed as such

Question 21

Discuss a partnership’s management.

Answer 21

Unless stipulated otherwise, all the partners have the power to manage the partnership (art. 2215 CCQ)

Partners can appoint a third party to manage the affairs of the partnership (art. 2213 CCQ)

The details of management should be specified in the partnership agreement

Question 22

Discuss the transfer of ownership in partnerships.

Answer 22

The transfer of ownership is possible

The partners agree on how to deal with each partner’s share of the assets

• Right of first refusal: if you want to sell your share, you must propose it to your partner to buy it first. If they refuse, then you may take an offer from a third party

Question 23

Discuss the termination of a partnership.

Answer 23

• Agreement of the partners
• Death
• Bankruptcy
• Must file a declaration of cancellation (no cost - regular; $28 - priority)

*Note: same goodwill issues as with sole proprietorship

Question 24

Enumerate the advantages and disadvantages of the partnership.

Answer 24

Advantages:
- Simple start-up
- Low start-up costs
- Easy to dissolve
- Easier financing

Disadvantages:
- Unlimited liability
- Lack of continuity
- Conflict
- Transfer difficulties

Question 25

What are the two types of partners in a limited partnership?

Answer 25

2 types of partners: General & Special

General:
- have solidary and unlimited liability

Special:
- only liable up to the agreed amount of their contribution to the partnership (art. 2246)
- not permitted to take part in the management of the partnership, but may give advisory opinions (art. 2244 CCQ)

Question 26

What is a partnership agreement?

Answer 26

• Overview of partnership agreement template in the optional course text, Essentials of Quebec Business Law, 4th Ed. (see myCourses)

Google: a document used to dictate the terms of a business partnership between two or more partners. It encompasses information about capital contributions, management, and profit and loss distribution.