Selling your corporation or your business Part 2

Here is the 2^nd part of our blog series:

When selling your business you should look at your valuation and see if your asking price fits in the range of similar businesses being bought and sold on the market.  With the advancement of the internet, it is very easy to search businesses for sale that are similar to yours to see if you are in the ball park asking price.   The asking price may or may not be Fair Market Value and that is up to you. However, the closer it is to Fair Market Value (or less), the easier the corporation/business will be to sell.  If someone just wants to purchase the assets and not the shares, then your tax consequences are higher so you may want them to pay more.  Alternatively, you could give a discount on the sale price if they were to buy the shares vs. the assets.  At the end of the day, it is a sale between you and someone else and whatever price and method you come to agreement with is your decision! 

However, if you are going to sell the business at Arm’s Length, such as to another Corporation owned by you and/or family members, to a trust, or to a family member, then you must sell/transfer it at Fair Market Value to the Arm’s Length party.  Fair Market Value is just a fancy word to determine what it is worth if you sold it on the market today! 

Another thing to mention here is that when you sell your business, it is best to close your current business number with CRA and let the new business owner open a new one.  This would include GST, Payroll, Corporate Tax, and Import/Export accounts you have open.  Along that same line, the minute book must be updated through the sale according to the business sale/purchase contract details.  You may want to keep your minute book and have the new business owner create a new one. 

One more topic to discuss in selling your business is to remember that you can get creative in your deal.  For example, the buyer could give you part cash and part other assets, such as Real Estate, Vehicles, other businesses or anything else that may be of value to you.  Also, if the purchaser does not have all the funds to purchase the business at the agreed price, and they can’t get financing, you could finance the balance of the sale over a set period of time.  These are just a couple examples of getting creative and the ideas could go on and on.  Remember though, it is always best to seek professional advice in doing any business purchases, sales or transfers.  We are here to help so don’t hesitate to contact us!

Getting Assets into and Funding your Family Trust - Part 1

If you’ve been reading the series of blogs on Family Trusts, you should now have a good understanding of the how to set up a trust, the basics of using it, and the benefits and drawbacks associated with having the trust. We will now begin to discuss some of the different ways to get assets into your trust, as well as how to get funds into your trust.

As already discussed, when you are setting up a Family Trust it is best to have someone else settle the trust with a small asset, such as a silver ingot. This is the initial property of the trust and should be the only asset given to the trust without consideration. Typically when assets or funds are put into a trust there should be consideration for the asset or funds. For example if we’re going to put real estate into the trust, there must be consideration to acquire the real estate, such as currency or another form of asset in consideration for the real estate. This is a general rule although there are some small exceptions which are very specific and will not be covered in this blog series.

When putting assets into the trust we must consider the tax consequences. First of all we must understand that all assets going into a trust should be at Fair market Value. Fair Market Value is the current price that the asset would sell for on the open market. For example if it is real estate, you can look at a Market Assessment by a licensed realtor, an appraisal from a licensed appraiser, or sometimes the value on the Property Tax Assessment of the property. This means that if you own the asset that is going to be put into the trust, you will most likely have a disposition that could result in a Capital Gain. Before transactions are made that add property into a trust or take property out of a trust, you must plan for the potential tax consequence. Kustom Design can help you with the planning, but it is up to you to ensure you take the time and book the consultation.

There are 4 main ways that you can get assets or funds into a trust:

1. Lend

2. Gift/Transfer

3. Sell/Acquire

4. Income from Business and/or investments

Each of these methods are dealt with differently for tax purposes. In the next blogs we will begin to look at each of these ways to get assets and funds into a trust.