Lesson 3: Forms of Business Ownership
Lesson 3 examines the three forms of business organization available in Quebec — the sole proprietorship, the
partnership, and the corporation — with a focus on corporations: the key players (shareholders, directors,
officers), share ownership and classes, special rules dealing with fraud and dealings with third parties, and the
rights, obligations, and duties (including personal liability) of directors, officers, and shareholders. The lesson
closes with a framework for reading and analyzing a court case, in preparation for the jurisprudence covered
later in the course.
⭐ 3.0 Introduction
A business is an enterprise operated in order to generate a profit. In Quebec, there are three forms that may be
used for a business organization: the Sole Proprietorship, the Partnership, and the Corporation. This lesson
examines the positive and negative factors associated with each form.
KEY FRAMEWORK ⭐
When reading a court case (in this lesson and subsequent lessons), take note of: the names of the
parties, the facts of the case, the legal issue in dispute, the position of each party, and the final
judgment rendered by the court. Reading court cases helps us understand how judges apply the law
to actual factual situations.
⭐ 3.1 Introduction to Forms of Business Ownership
KEY DEFINITION ⭐
A business is an enterprise that carries on an organized economic activity for profit. There are three
forms of business ownership: the sole proprietorship, the partnership, and the corporation
(incorporated entity).
Sole Proprietorship ⭐
• The simplest form of business — one owner who owns 100% of the business, and this owner must be a
human being.
• The business operates under the name of the owner, or a chosen business name; it must be registered in
the province of operation (a simple online form and yearly fee, similar to partnerships and corporations).
• ⭐ The owner is personally liable for all of the debts of the business — a high-risk form of business;
personal assets may be seized by creditors of the business.
• A sole proprietorship terminates with the death of the owner, or when the owner stops operating. The
business cannot be sold as a going concern (only the assets can be sold).
Very few businesses operate as sole proprietorships, due to the high risk of personal liability and the tax
advantages available through incorporation.
Partnership (CCQ 2186)
, KEY DEFINITION ⭐
A partnership is a contract by which the parties, in the 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 (monetary) profits.
In short: two or more persons working together for a common goal and sharing the common profit.
General Partnership (CCQ 2186) ⭐
The most common form of partnership. Governed by a partnership agreement — a private contract signed by all
partners specifying:
• The roles, contributions, and functions of each partner.
• The share of profits each partner will receive.
• A mechanism to buy, sell, or transfer a partner's interest (e.g., on death or departure), so the partnership
can continue without hindrance.
Partners can be human beings (like a sole proprietor) or corporations — there is no law preventing corporations
from forming a general partnership together. A partnership must register its business in the province in which it
operates, similar to a sole proprietorship.
Solidary Liability (CCQ art. 1523) ⭐
KEY DEFINITION ⭐
All partners in a general partnership are personally liable for 100% of the debts of the partnership
— a business creditor can go after the personal assets of the partners. This principle is called
solidary liability (referred to as “Joint and Several” liability in common law provinces such as Ontario
— the same legal concept).
A creditor may sue any one or more partners for up to the full amount of the debt, and collect it
from any one or more of them (typically the most solvent/easiest to collect from) — but the
creditor cannot collect the total debt amount from each partner (i.e., cannot multiply the debt by
the number of partners).
The partner who pays the full debt has a legal recourse against the remaining partners to be
reimbursed their respective shares.
EXAM EXAMPLE
A general partnership has four partners and one creditor owed $20,000. The creditor can sue any
one, some, or all of the four partners, and collect the full $20,000 from any one or more of them —
but cannot collect $20,000 from each partner (i.e., $80,000 total). If one partner pays the full
$20,000, that partner can legally seek reimbursement of $5,000 from each of the other three
partners.
Limited Partnership (CCQ 2236) ⭐
KEY DEFINITION ⭐
Lesson 3 examines the three forms of business organization available in Quebec — the sole proprietorship, the
partnership, and the corporation — with a focus on corporations: the key players (shareholders, directors,
officers), share ownership and classes, special rules dealing with fraud and dealings with third parties, and the
rights, obligations, and duties (including personal liability) of directors, officers, and shareholders. The lesson
closes with a framework for reading and analyzing a court case, in preparation for the jurisprudence covered
later in the course.
⭐ 3.0 Introduction
A business is an enterprise operated in order to generate a profit. In Quebec, there are three forms that may be
used for a business organization: the Sole Proprietorship, the Partnership, and the Corporation. This lesson
examines the positive and negative factors associated with each form.
KEY FRAMEWORK ⭐
When reading a court case (in this lesson and subsequent lessons), take note of: the names of the
parties, the facts of the case, the legal issue in dispute, the position of each party, and the final
judgment rendered by the court. Reading court cases helps us understand how judges apply the law
to actual factual situations.
⭐ 3.1 Introduction to Forms of Business Ownership
KEY DEFINITION ⭐
A business is an enterprise that carries on an organized economic activity for profit. There are three
forms of business ownership: the sole proprietorship, the partnership, and the corporation
(incorporated entity).
Sole Proprietorship ⭐
• The simplest form of business — one owner who owns 100% of the business, and this owner must be a
human being.
• The business operates under the name of the owner, or a chosen business name; it must be registered in
the province of operation (a simple online form and yearly fee, similar to partnerships and corporations).
• ⭐ The owner is personally liable for all of the debts of the business — a high-risk form of business;
personal assets may be seized by creditors of the business.
• A sole proprietorship terminates with the death of the owner, or when the owner stops operating. The
business cannot be sold as a going concern (only the assets can be sold).
Very few businesses operate as sole proprietorships, due to the high risk of personal liability and the tax
advantages available through incorporation.
Partnership (CCQ 2186)
, KEY DEFINITION ⭐
A partnership is a contract by which the parties, in the 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 (monetary) profits.
In short: two or more persons working together for a common goal and sharing the common profit.
General Partnership (CCQ 2186) ⭐
The most common form of partnership. Governed by a partnership agreement — a private contract signed by all
partners specifying:
• The roles, contributions, and functions of each partner.
• The share of profits each partner will receive.
• A mechanism to buy, sell, or transfer a partner's interest (e.g., on death or departure), so the partnership
can continue without hindrance.
Partners can be human beings (like a sole proprietor) or corporations — there is no law preventing corporations
from forming a general partnership together. A partnership must register its business in the province in which it
operates, similar to a sole proprietorship.
Solidary Liability (CCQ art. 1523) ⭐
KEY DEFINITION ⭐
All partners in a general partnership are personally liable for 100% of the debts of the partnership
— a business creditor can go after the personal assets of the partners. This principle is called
solidary liability (referred to as “Joint and Several” liability in common law provinces such as Ontario
— the same legal concept).
A creditor may sue any one or more partners for up to the full amount of the debt, and collect it
from any one or more of them (typically the most solvent/easiest to collect from) — but the
creditor cannot collect the total debt amount from each partner (i.e., cannot multiply the debt by
the number of partners).
The partner who pays the full debt has a legal recourse against the remaining partners to be
reimbursed their respective shares.
EXAM EXAMPLE
A general partnership has four partners and one creditor owed $20,000. The creditor can sue any
one, some, or all of the four partners, and collect the full $20,000 from any one or more of them —
but cannot collect $20,000 from each partner (i.e., $80,000 total). If one partner pays the full
$20,000, that partner can legally seek reimbursement of $5,000 from each of the other three
partners.
Limited Partnership (CCQ 2236) ⭐
KEY DEFINITION ⭐
