Beware of quacks in the field of incorporations

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When considering an incorporation mandate, it is important to do some due diligence with the prospective service provider. Dozens of online incorporation services exist, sometimes at very low prices. One might wonder why one should deal with a lawyer or notary when there are companies offering to do it for a fraction of the price.

Reserved act

It is important to know that incorporating a company for a third party (for a client) is an act reserved for lawyers and notaries by law (Law Society Act and Notarial Act).

Article 128 paragraph 1 paragraph c) of the Law Society Act states that it is the exclusive competence of the lawyer (or authorised legal adviser) to do the following acts for others:

"prepare and draft an agreement, petition, by-law, resolution and any other similar document relating to the incorporation, organization, reorganization or winding up of a corporation governed by federal or provincial laws relating to corporations, or the amalgamation of two or more corporations or the surrender of a charter."

Thus, everything that concerns the constitution, organisation, reorganisation or liquidation of a corporation constitutes an exclusive act of the lawyer (and notary). A company that is not operated by a lawyer or notary, or that does not comply with the requirements for practising the profession of lawyer or notary in a company, is in contravention of the law and can be prosecuted for illegal practice of the profession.

It should be noted that the Law Society Act covers both the preparation and drafting of incorporation documents. Thus, a company that claims to offer an accompaniment service and that proposes models is no less in contravention of the law, because in fact it "prepares" the documents.

Why is this a reserved act?

The incorporation or reorganisation of a corporation is a reserved act to protect the public. It is necessary to understand and master the intricacies of corporate law in order to properly incorporate and organise a company. Poor organisation can lead to significant problems in the long term, particularly if the structure put in place by the service provider is inappropriate for the client's needs or if certain legal requirements have not been met (e.g. the formalities required for the issue of shares).

An inadequate or poorly executed incorporation will necessarily require the consultation of a legal professional in order to "upgrade" and correct the situation, where possible. The fees required to do this are generally higher than the normal incorporation fees.

The lawyer is also able to propose structures tailored to the client's needs, with special classes of shares to achieve the client's objectives (discretionary dividend shares, non-voting ordinary shares, control shares, etc.).

What to do about charlatans?

When a company sells legal services for the organization or reorganization of a company in contravention of the law, it is possible to denounce it to the Barreau du Québec or the Chambre des notaires. They will then conduct an investigation, and ultimately criminal proceedings may be taken against these companies.

 

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