Structuring your Corporation part 3

Another question that comes up often is “should I make my kids a shareholder of the corporation?”  Although there could be benefits of making your kids a shareholder, it is a very serious consideration and you must look at the potential issues you may face in doing so.  The main reasons why people want to make their kids a shareholder are, first, to give part of the ownership to the kids giving them a sense of ownership and potential option to be able to pass on the business to them easier.  Second is for income split using dividends.  To receive dividends they will be 18 years of age, and if you make them a different class of shareholder they can receive dividends in the amount you choose each year (based on profit).  The main potential issue that you have to consider here is how well you know your son(s) or daughter(s), how well you will know them in the future, and how well you know their spouse(s) or future spouse(s).  Kids do go estranged and sometimes marry a spouse that could cause potential issues.  What I’m saying here is you have to consider who these owners (shareholders) and their spouses will be in the future as they may have a say in your corporation!

To get around this issue and to look at further structuring efficiently, we begin to look at trusts and holding companies.  We will not go too deep into these here in this blog, but please do look for my other blogs on trusts that go more in depth!  By setting up a trust that owns the corporation’s shares you can income split to all the beneficiaries of the trust at whatever percent you want without any of the beneficiaries becoming an owner of the corporation!  Having a trust own your corporation not only benefits you with ultimate splitting of dividends, but could also allow you greater benefit if you ever sell the shares of the corporation and much more!  Add a holding company into the structure by having the holding company owned fully by the trust, and in turn having the holding company owning some shares of your operating company.  This allows for you to issue tax free dividends to the holding company.  Once these dividends are issued into the holding company tax free you can do what you like with them, including holding on to them until a later date, lending them out, or paying dividends to your trust and ultimately the beneficiaries (you and your family)!

Again we are just covering some basic guidelines, tips and strategies that are very effective.  There are unlimited options and possibilities when it comes to structuring so please don’t hesitate to email us or give us a call!