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!

Selling your corporation or your business Part 1

There is so much to consider in regards to this topic and as usual I will make mention that each person’s/corporation’s scenario is different and the knowledge in this article should be used in conjunction with good planning with professionals.  As always, you can ask me questions anytime by contacting me through the contact information listed on the blog or our website www.kustomdesign.ca.

Let’s start by looking at the basics of selling your corporation.  We already spoke about the Capital Gains exemption on the sale of qualified small business shares and in the last blog, we even went into what makes the shares of your corporation qualified for this $750,000 lifetime Capital Gains Exemption that you have access to.  This is only on the sale of the shares of your corporation, so in essence, this is a sale of the actual entity (corporation).  Selling your business this way brings very favorable tax consequences due to the $750,000 Capital Gains Exemption and if the corporation that is sold is owned by a trust then the trust has its own $750,000 Capital Gains exemption as does all the beneficiaries of the trust.  So in the case of a corporation owned by a trust being sold,  there could be millions of dollars in tax free capital gains eligible to the trust and beneficiaries of the trust where the profits from the business sale would be split.

The other way to sell a corporation is to sell the assets.  If there is no gain on the assets from the current value on the books, then there is no tax issue.  However, if there is a gain being made on the sale of the assets then there could be tax owing.  The other factor in selling the business is Goodwill.  This is the value of the business other than the physical assets, such as the branding of the company, the repeat client base and other non physical value of the business.  This basically comes down to how much the buyer of the business is willing to pay for all the sweat equity that you’ve done in building the business. 

We will continue the 2^nd and last part of this blog series soon! Please check back with us before the end of the week. 

Getting Assets into and funding your Family Trust – Part 3

We have been discussing the 4 main ways that you can get assets or funds into a trust and each of them are dealt with differently for tax purposes:

1. Lend

2. Gift/Transfer

3. Sell/Acquire

4. Income from Business and/or investments

We’ve now gone deeper into #1 and #2, so let’s now discuss the other 2.

Similarly to gifting to a trust, when the trust is purchasing an asset in an arm’s length transaction it should purchase the asset at Fair Market Value. We’ve already discussed Fair Market Value in a prior blog, however “arm’s length” is another term we must become familiar with. Some examples of an arm’s length purchase by the trust would include purchasing assets from the Trustee, the beneficiaries, the settler or a corporation that the trust has ownership of. If the asset is purchased by the trust in a non arm’s length transaction then the Fair Market Value is not important and we can just deal with the asset at the actual purchase price.

When you are selling assets to a trust, similarly to other sales, cash is not the only form of payment that can be used. For example the trust could give a promissory note, another asset such as shares, or a combination of assets and promissory note. The same rules for the promissory note that we discussed in prior blogs would apply when it comes to interest and payments. As always with specific transactions of your trust it is best to seek Professional advice, Kustom Design is here to work with you for all your financial, accounting, tax and structuring needs.

The other main way to get assets into a trust is to simply receive income from business and/or investments. Typically the businesses and investments that the trust is receiving income from are owned by the trust. Trusts would typically receive non active income, such as dividends, interest or capital gains from these businesses and or investments.