Steps to Incorporation, Part 2

Here’s part 2 of our blog series on Steps to Incorporation:

Once you’ve determined whether the corporation will be federal or provincial, it is time to pick your name.  You must confirm that the name is available and is not already being used.  To do this you can do a quick search (in most provinces) and you will then know if the name is available or not.  Sometimes you may find that there is a name being used that is very similar to the name you chose.  if that is the case you may not want to move forward with that name as you could run into issues down the road, such as confusion to the public or even lawsuits from the corporation that has the similar name.  You can simply look at variations of your name to get around this issue, or you may have to look at a completely different name.  Also keep in mind when deciding on a name that you most likely will need a website so it is good to check what domains are available that you can use with your business name.  Once you’ve determined your name is available for the corporation, you can hold on to it for a period of time if you are not ready to incorporate.  This is important, otherwise someone else could take the name before you incorporate it.  To do this you simply get a NUANS through the registry, or Kustom Design can do this for you.

Next you need to confirm your structuring.  Although you should have been planning for this structure right from the beginning, now is the time to finalize it.  If you have not read my blog on Structuring your Corporation, then go now and read through that blog in detail.  Keep in mind that it is important to determine who the shareholders, directors and officers will be.  If you have a family trust and/or a holding company then you should not own an operating company personally, the trust and/or holding corporation should own the operating company.  If you are partnering with other people than you should definitely look at getting a Unanimous Shareholder’s Agreement (U.S.A.) as discussed in a prior blog of this series.

Last part of this blog series will be posted soon! Please check back!

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!

Structuring your Corporation part 2

Here’s the second part of my blog series on “Structuring your Corporation.”

Another note here on splitting the profits from a corporation between spouses is to give both spouses different classes of shares, for example one spouse could have class A shares and the other could have class B shares.  This allows for different amounts of dividends allowed for distribution between spouses for tax planning effectiveness.  If both spouses have the same class of shares, they have to take the same amount of dividends.  It is always advantageous in tax planning for 2 spouses to be able to have control on how much income they receive, and using different classes of shares allows you full control as to “who gets how much income” when it comes to dividends!

This of course differs from multiple people, who are not married, partnering in a corporation.  In the case of an actual partnership with other shareholders you may want to have the same class of shares so that each partner gets the same amount of dividends as they are declared!  Here is also where other classes of shares may come in.  As mentioned there are various classes of shares that can be issued from a corporation so planning is essential.  Don’t do this on your own, or go to a registry agent to structure your corporation, seek professional help.  Kustom Design can assist you in getting your footing when it comes to structuring and we can then further assist you in working with the right legal professionals to finalize and implement the best structure for you!

If you are in a corporation that has multiple shareholders partnering, you definitely want to consider having a Unanimous Shareholder Agreement (U.S.A.) drawn up by a lawyer.  Partnerships have to be given a lot of consideration and must have agreement from day 1 when the structure is formed.  It is best to spell everything out in writing through a contract, and to consider potential outcomes such as death of partner, one partner becoming unable to work, one partner buying out the other partner, and so forth. 

Please check back to read part 3 of this blog series.

Structuring your Corporation part 1

There is so much to consider in structuring a corporation and this blog will definitely not be able to cover all the considerations and options for structuring, nor should this blog be misconstrued as legal advice.  That said, in this blog series I will give you a lot of very useful information and tips on structuring corporations.  Because this blog series is on corporations, we will not be going into any great detail on the various other entities and contracts you can use in your structure, such as trusts and Limited Partnerships. 

There are virtually unlimited options when it comes to structuring your corporation as there are many different classes of shares within multiple categories.  The different classes of shares are in letters, such as class A shares, class B shares, class C shares, class D shares etc.  The 3 main categories of shares are:

1. Voting Shares – Used for the main shareholders with voting rights
2. Non Voting Shares – Used for other shareholders with no voting rights
3. Preferred Shares – Shares with preferred treatment, typically used for attracting investors or in restructuring existing corporations

Let’s start with some basics that you should know in structuring a corporation.  First you should always consider making both you and your spouse a shareholder in your corporation if you are married.  In making both spouses a shareholder you are opening up the door for income splitting the profits of the corporation through dividends.  Being a shareholder does not mean liability is taken, in fact it is typically the director that would take all liability of the incorporation as we’ve discussed in a prior blog.  So both spouses can be shareholders and receive benefit, while only one spouse could be a director taking the liability on.  It is always good to keep one spouse sheltered from liability. 

We’ll continue our blog series on “Structuring your Corporation” on my next blog post.