Charities 101

A registered charity is an organization established and operated for charitable purposes, and must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members. Charities are usually registered as Corporations, or are governed by a trust or a constitution. They may be under a covering of a parent Organization.

The main advantages of charities are:

Ø  Charities are able to receive gifts tax free.

Ø  Charities provide receipts to donors for tax savings.

Ø  Charities are tax exempt

Ø  Charities make a great impact in our communities, provinces and our country!

The main disadvantages of charities are:

Ø  Charities take time to set up.

Ø  It is a large undertaking to set up a Charity, and there are ongoing requirements.

Ø  Charities must meet a public benefit test.

Ø  You cannot keep profit of the charity.

Ø  If you lose charitable status, all assets are taxed, or if break any of the various charitable rules you could face various consequences.

Many people have asked what the difference is between a charity and foundation in Canada.  The main difference is that charities are public and foundations are private.  Foundations in Canada are charities and mostly operate by the same rules.  Foundations are typically used to raise funds privately to distribute to other charities.

Charities should not be confused with non profits.  Non profits have much less regulation than charities, however they are treated similarly in that they are typically tax exempt and cannot distribute profit to benefit ownership.  The biggest difference between charities and non profits is that non profits are not allowed to issue tax receipts for donations to receive tax credits!

Professional Corporations 101

A professional corporation is a corporation engaged in providing professional services, where a profession governed by its professional body allows its members to practice through a corporation as opposed to a sole proprietorship or partnership.  Examples include Doctors, Dentists, Chiropractors, Lawyers and Accountants.  To have a Professional Corporation you must belong to a professional governing body.

The main advantages of professional corporations are:

Ø  Having a Professional Corp. allows you to belong to Professional Organizations.

Ø  Having a Professional Corp. allows you to be recognized as a Professional.

Ø  Many people like to deal with Professionals that are governed by another body for accountability.

The main disadvantages of professional corporations are:

Ø  There are more tax filing and other rules for a Professional Corporation than a regular Corporation.

Ø  A Professional Corp’s life is ended if the person/people holding the designation passes away or loses their license.

Ø  You are under the rules of the Prof. Organization that may not allow you to have shareholders or partners that don’t belong to the organization. (hold credentials).  Typically the exemption to this is immediate family members, such as a spouse or children.

Ø  The articles of incorporation, in addition to all other requirements, must limit the activities of the corporation to the profession.

If you belong to a professional governing body they may require you to have a professional corporation.  Please contact us if you require more information on business structuring or professional corporations.

The last part of the series on structures will be about Charities. Check back next week and we’ll discuss some general information about these organizations!

Partnerships 101

In this blog we are talking about unincorporated partnerships.  Check our other blogs for other forms of corporate partnerships, limited partnerships and more.  A partnership is established when two or more people agree to pool their financial, managerial, technical and other resources in order to operate a business for profit.  Like a sole proprietorship, a partnership is not taxed as a business that is separate from its owners.  The income from the partnership is included as part of the partners’ personal incomes and taxed accordingly.

The main advantages of partnerships are:

Ø  Because two or more people will be in business together, they can combine their finances in order to invest more than either could have done individually.

Ø  A partnership will most likely be able to borrow more than a sole proprietorship because creditors will have the credit & collateral of two or more people instead of only one to secure their lending.

Ø  Partners can pool talents and resources to accomplish more.

The main disadvantages of partnerships are:

Ø  Like a sole proprietorship, partners in a partnership are also exposed to unlimited liability incurred by the business, in relation to their % of ownership.

Ø  The partnership ends every time a partner leaves, unless provided for in a partnership agreement.

Ø  Start-up costs can be as high as, or even higher than, the cost of incorporating, due to the cost of Partnership Agreements.

If you are considering a partnership you may not want to use this typical form of partnership, but instead consider using a corporation or limited partnership.  Please contact us if you require more information on business structuring or partnerships.

My next blog will be about Professional Corporations so please visit my blog again!

Limited Partnership 101

Limited Partnerships are a special form of partnership, often used where investors want the tax treatment that comes from a partnership relationship, without incurring personal liability for all of the partnership debts.  Limited Partnerships (LP’s) consist of a General Partner, responsible for managing the business of the LP, and the Limited Partners, the silent investing partners that have no say in the business activities. 

The main advantages of limited partnerships are:

Ø  Limited partners have limited liability.

Ø  Both Income and Losses are flowed through to limited partners.

Ø  It is easy to attract investors to an LP.

Ø  Allows for experienced general partners to use their expertise in running the business.

Ø  Limited partners can leave without LP dissolution.

The main disadvantages of limited partnerships are:

Ø  There are more filings, formalities, requirements with limited partnerships.

Ø  It can be costly to form a Limited Partnership.

Ø  General partners assume personal liability.

Ø  Much due diligence is required before investing as you are trusting your money in the hands of the General Partner.

Both General Partners and Limited Partners can be corporations.  There are many uses for Limited partnerships, including minimizing and deferring tax.  If you have any questions on Limited Partnerships or other structuring  questions don’t hesitate to contact us!

We’ll take a look at Partnerships next week! 

JOINT VENTRURES 101

A joint venture is not a structure, but is really a contract.  A joint venture exists when two or more people agree to contribute goods, services, labor or capital to one business enterprise. Canada has no specific laws governing joint ventures, outside of contract law.  Currently, joint ventures are governed by the contract between the parties involved in the jurisdiction they are agreed to be governed by.

The main advantages of using joint ventures are:

Ø  You can make up the rules as to what the joint venture contract will look like.

Ø  Joint Ventures are very flexible.

Ø  Joint Ventures bring people together to share resources and/or talents.

Ø  Joint Ventures can simply end when the deal is done (unlike a partnership or corporation).

The main disadvantages of using joint ventures are:

Ø  Contracts can be complicated and costly.

Ø  The objectives of the Joint Venture may not be clear, or each JV partner may have different objectives that cause conflict.

Ø  Legal Contracts come down to interpretation, and in Joint Ventures there are no major laws governing them.

Joint ventures can be used in conjunction with corporations, trusts and other types of structuring.  If you have structuring questions, don’t hesitate to contact us!

On my next blog, we’ll discuss Limited Partnerships. Please check back on Thursday! 

Holding Companies 101

Also called a parent company, a holding company is a company that owns part, all, or a majority of other companies' outstanding stock. (shares)  A holding company may or may not be used for holding other assets and leasing them to an operating company. 

The main advantages of holding companies are:

Ø  A holding company offers the ability to segregate earnings from the main operating company.

Ø  With proper planning you can creditor-proof the assets of the business.

Ø  Can be used for Income Splitting Purposes.

Ø  Generally, if set up properly, you can issue dividends from an operating company up to a holding company on a tax-free basis (Onshore and Offshore)

Ø  Easy to move money between Holding company. and Operating companies via dividends and loans, etc.

The main disadvantages of holding companies are:

Ø  Requires more cost and time, as you now have more than one corporation.

Ø  Requires more planning to be able to effectively use your Holding Company.

Ø  Holding Companies don’t qualify for the Lifetime Capital Gains Exemption on qualified small business shares.

Holding companies should be used in conjunction with a family trust where possible.  The advantages of having a holding company far outweigh the disadvantages, so if you are considering implementing a holding company in your structure please do contact us.  We are here to assist you with all your structuring needs.

Please check back next week and we’ll discuss how Joint Ventures work. 

Be part of the KD Team - General Accounting Manager Job Posting

General Accounting Manager -- Calgary, AB

THE KUSTOM DESIGN TEAM is a team of professional accountants, tax specialists and strategic planners supported by a dedicated staff and strategic alliances. 

GUIDED BY A CODE OF HONOR THAT INCLUDES being positive, recognizing personal contributions, being a good steward, doing whatever it takes for the team to succeed and honoring and respecting one another (and more!) we are looking to add an amazing team member as a General Accounting Manager.

RESPONSIBILITIES WILL INCLUDE:

• Client support including corporate year end (some bookkeeping), corporate structuring and tax planning, client presentations and customer service
• Manage flow of corporate year ends and business package clients
• Oversee accounting technicians’ work and provide leadership/mentorship as needed

QUALITIES/SKILLS:

• 5+ years of accounting experience
• 3+ years of management/leadership experience
• A CGA/CMA or equivalent is preferred
• Full cycle accounting knowledge (for small to medium size businesses)
• Tax knowledge specific to small and medium size business owners
• Demonstrate key leadership attributes such as a passion to serve, humility, challenging status quo and driving to the top
• References who support a strong history of superior client service
• Strong analytical and organizational skills
• Self-starter, highly motivated and a demonstrated ability to work well in a diverse environment
• Excellent verbal and non-verbal communication skills

WHY KUSTOM DESIGN:

• We’re a small, growing team that allows for flexibility and career development
• We live by a code of honour that encourages respect for all and a team approach to solving problems
• We develop real, meaningful relationships with our clients

TO APPLY:

If you’re interested in pursuing this amazing opportunity, please send your resume to info@kustomdesign.ca.  We thank all those who apply!

Cooperatives 101

A cooperative is generally described as a business that is organized, owned and democratically controlled by the people who use its products and services, and whose earnings are distributed on the basis of use of the cooperative rather than level of investment.  A distinct feature of a cooperative organization is that the role of owners and patrons / users are closely connected.

The main advantages of Cooperatives are:

Ø  Cooperatives have many of the same advantages of investor-owned corporations such as limited liability of owners and perpetual existence of the cooperative.

Ø  Cooperatives are allowed to deduct patronage refunds to members out of before-tax income.

Ø  Control of the business can be kept in the hands of those who use the business.

Ø  Profit distribution may be allocated in shares or cash.

The main disadvantages of Cooperatives are:

Ø  It may be difficult to raise funds for a Cooperative.

Ø  Cooperatives may not provide incentives for members to contribute additional capital.

Ø  Extensive Record Keeping and more complex tax and registrations filing is required.

Ø  Longer decision making process with more possibility of conflict between members.

Cooperatives are used much less than corporations and trusts, however they do have their place.  Cooperatives are very typically large businesses.  If you have questions on structuring your business or investments don’t hesitate to contact us.

On my next blog, we’ll take a look at Holding Companies.