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on company law

The Professional Code was amended in June 2001 to authorize the practice of professional activities through a limited liability partnership (LLP) or a corporation. In order to benefit from these amendments, each professional order must adopt regulations determining the terms, conditions and restrictions pertaining to the activities carried on within these legal structures.

The Ordre des comptables agréés was the first professional order to adopt such regulation, which became in force on February 20, 2003. The Ordre also updated the Code of Ethics of Chartered Accountants to ensure consistency with the Regulation Respecting the Practice of the Chartered Accountancy Profession Within a Partnership or a Joint-Stock Company, to update certain provisions for consistency with the terms used in the Canadian Institute of Chartered Accountants (CICA) Handbook and to integrate and update the provisions respecting advertising, firm names and contingent fees.

The Regulation Respecting the Practice of the Chartered Accountancy Profession Within a Partnership or a Joint-Stock Company provides that chartered accountants can now practice their profession within a "limited liability partnership" ("LLP"). This type of partnership is very similar to the general partnership of the Civil Code of Quebec but the principal distinction is that the professional cannot be held jointly and severally liable for the acts of his professional partners. His liability is restricted to the professional acts that he executes himself or that are performed by another person that he supervises or controls. However, this restriction is limited to professional acts. Partners of an LLP remain jointly and severally liable for all the activities related to carrying on business, such as lease agreements, purchase of equipment and supplies, employees salaries, etc… The expression "limited liability partnership" or the abbreviation "LLP" must be included in the name of the firm.

Chartered accountants, like all business people, can also enjoy the various benefits of incorporating a company, such as tax benefits, the separate legal personality of the corporation and the limited liability of its shareholders. The Quebec legislator selected this legal structure, traditionally considered incompatible with a professional status. Restrictions and conditions were added in order to respect the specific obligations of the practice of professional activities.

Four conditions are enacted in the Professional Code. First, the activities that the corporation may carry on are limited to professional activities, including related functions. Second, each professional order must enact a specific regulation authorizing its members to use the corporate structure. Third, security against the liability of the partnership or the company must be furnished, said security being in addition to the security against personal professional liability. Finally, a declaration indicating that the professional carries on his professional activities within an LLP or a corporation must be filed with the order.

There is no restriction pertaining to the jurisdiction of the company. Therefore, chartered accountants may incorporate a company under Part 1A of the Quebec Companies Act or they may choose to incorporate under the Canada Business Corporations Act.

The Regulation Respecting the Practice of the Chartered Accountancy Profession Within a Partnership or a Joint-Stock Company (the "Regulation") provides for two types of companies. Requirements are similar in both cases but a distinction is made regarding the persons that are members of the company.

Section 1 of the Regulation pertains to LLPs and companies formed exclusively by chartered accountants or that perform attest functions. This type of company or partnership can also offer to the public all other accountancy services listed in Section 1 of the Code of Ethics of Chartered Accountants.

The objective of the Regulation is to provide flexibility while ensuring protection of the public. The conditions and restrictions it stipulates ensure that the effective control of these companies and partnership is, at all times, in the hands of members of the Ordre des comptables agréés du Québec or of the Canadian Institute of Chartered Accountants. Therefore, the majority of the voting rights attached to the shares of the company or the partnership must be held by members. A majority of the members of the Board of Directors, as well as its quorum, must also be members of one of these orders. In addition, the Chairman of the Board of Directors must also be a member of one of those orders and must hold at least one voting share.

Section 2 of the Regulation deals with LLPs and companies that are not formed exclusively by chartered accountants and that do not perform attest functions. The provisions are similar but a wider selection of persons may be partners, shareholders and directors, as they include members of any one of the 45 professional orders governed by the Professional Code as well as other designated professionals.

Finally, the Regulation provides for restrictions with respect to voting agreements in order to ensure that the provisions are not defeated by an agreement that would be derogatory to the independence and the ethics of the profession.