Posts Tagged ‘Types of companies’

Business Insurance: A Better Solution for Your Business and Succession Planning

clip_image002

By Thien Ly

Many business owners/shareholders rely on their company to provide family income, personal financial security and a legacy for their next generation. If these business owners, active in the management of their business or corporations, should become very ill, disabled, or die, management is suddenly disrupted, adversely affecting the business. Financial loss may occur and a reorganization of management is inevitable. The remaining business partners/shareholders are often faced with four options:

  1. Reorganize to include heirs in the business: Disadvantages could include inexperience, incompatibility and lack of management ability.
  2. Reorganize to include an outsider: May lack the skills and experience or bring conflicting management ideas to the business.
  3. Sell out to heirs: Agreement between all on a fair price may be difficult to achieve.
  4. Buy out to heirs: Cash to purchase their shares may not be readily available.

A better solution exists, that would first guarantee heirs the full value of their shares in cash and guarantee the surviving partners/shareholders full ownership of the business. It’s a simple solution:

  1. Shareholders/partners agree, by contract (buy-sell agreement), that:
    • The shares from the business of any deceased or disabled owner will be purchased by and sold to surviving partners in the event of death, disability or illness.
    • The price will be clearly set forth.
    • The method of financing the purchase will be clearly defined from this agreement.
  2. Shareholders/owners will create a special fund through Business Life, Disability and Critical Illness Insurance that will:
    • Provide sufficient cash when needed immediately and economically.
    • Free operating capital for normal business requirements.
    • Eliminate additional borrowing or invasion of personal resources.
  3. The advantages of Business Life, Disability and Illness Insurance:
    • For surviving shareholders: Guarantees full and immediate ownership of the business.
    • For the heirs: Guarantees full value of their interest in the business, in cash.
    • For the business: Guarantees business continuity and strengthens its position with clients, creditors and competitors.

Should a business partner/shareholders die, become disabled or diagnosed with a critical illness, there can be disruption with loss to both the business and the heirs, or there can be a smooth transfer of interests at fair value for both the surviving owners/shareholders and their heirs. The choice is yours. Which will it be?

About Thien Ly, EPC, RHU

Since early 2002, upon graduating from Business Accounting and Finance, I have been contracted as an independent Advisor at Sun Life Financial. I’ve been dedicated to helping families, business owners and companies achieve their lifetime financial goals by providing clear financial advice in accordance to their individual needs. There’s nothing more rewarding in my practice then having an opportunity to work with people who appreciate my guidance in achieving their financial goals. I hold a Life & Health Insurance Licence, Investment Funds Licence, Elder Planning Counselling Designation and Registered Health Underwriter Designation. I am continuing my education by working toward additional financial designations. I’ve been a member of the Million Dollar Round Table, which is represented with the top 1% of financial professionals worldwide. I’m married to my wonderful wife, Haly, and we have two children. I spend my spare time with my family, and also play different sports: tennis, badminton, soccer, golf and swimming. I also raise funds for the Kidney Foundation. You can contact me through www.sunlife.ca/thien.ly or call 416-992-5109.

Posted by Lynnette in Getting Organized on August 16th, 2010

, , , , , , , , , ,
1 comment | Share

The pros and cons of incorporating vs. not incorporating your business

Brought to you by tax analysts from the QuickTax Business Incorporated and Unincorporated team

One of the questions asked most frequently by entrepreneurs is, “Should I incorporate my business?” The answer to this question is usually, “That depends on your particular situation and needs.” There are potential pros and cons to be considered before choosing the best option for your business.

Benefits of incorporating include:

1. Limited liability: This means that, as a general rule, shareholders’ liability to creditors is limited to the amount invested (unless shareholders have provided personal guarantees for the corporation’s debts).  

2. Greater access to capital: It is often easier for corporations to raise money than it is for other forms of business. Financial institutions and other lending sources view loans to corporations as less risky than to other forms of enterprise.

3. Small business tax deduction: Your incorporated business may qualify for the small business deduction, which is available to all Canadian-controlled private corporations earning active business income. With the small business deduction, a corporation pays approximately 11% on its first $500,000 of taxable income.

4. Tax deferral: This applies if a shareholder does not require all income generated for personal needs, and funds—after corporate income taxes—can be redirected into the corporation, resulting in postponement of immediate taxes at the personal level. A deferral is normally achieved through Canadian Controlled Private Corporation (CCPC) with small business deduction, since the tax rate is significantly lower than the top marginal personal rate.

5. Lifetime capital gains deduction: Individuals disposing of the shares of a qualified small business corporation are eligible to claim the $750,000 lifetime capital gains deduction.   

6. Tax planning: By incorporating a business, shareholders can be remunerated with dividends, in addition to salaries and bonuses. This allows shareholders the flexibility to take advantage of the imperfections in the tax integration system, which means it is unlikely that the combined federal/provincial corporate and personal tax rates in any given province will be the same. In some situations, the total taxes paid at the combined corporate and personal level will be less when the corporation is paying dividends other than salaries or bonuses.

In some situations, incorporating your business is unnecessary. Disadvantages normally associated with incorporation include:

1. Higher start-up costs: Generally, start-up costs—fees paid for the process of incorporating, legal fees, accounting fees, etc.—are higher for incorporated businesses than sole proprietorship or partnership-type businesses.

2. Increased formalities: Normally, incorporated businesses must file certain documents such as articles of incorporation, an Annual Return, notices of any changes in the board of directors and/or the address of the registered office, and a corporation income tax return.

3. Use of losses: An individual can deduct business losses against any other source of income, including employment income and rental income. If the business is incorporated, such losses can only be deducted against past or future corporate income.

4. Personal tax credit: A corporation is not eligible to take advantage of personal tax credits, such as the basic personal, tuition and education, age, etc.

Brought to you by tax analysts from the QuickTax Business Incorporated and Unincorporated team

Posted by Lynnette in Small Business Tax Tips on March 29th, 2010

, , , , , , ,
0 comments | Share

What do you think of…Inc.?

One of the first and most important legal steps you’ll need to take in setting up your small business is choosing the business structure you want.

There are three main legally recognized businesses:

1. A sole proprietorship is an unincorporated business owned and operated by one individual, under his or her name or a trade name, and where there’s no legal distinction between the owner and the business. That means all assets are owned and debts must be paid by the individual. A sole proprietorship is the easiest kind of business to set up; the owner has full decision-making power, keeps all profits from the business and pays only personal taxes, not corporate taxes.

2. A partnership is similar to a proprietorship, though more than one person shares control of the business. Again, all assets are owned and all personal taxes and debts are paid by the individual partners who, together, have full decision-making power. A partnership can be easy to set up but like a sole proprietorship, partners can be exposed to high levels of personal liability if financial problems arise.

3. A corporation offers the most safety from liability because it exists as a legally separate entity from the people who own shares in it. Incorporation also ensures the business can continue to operate if any members of the business leave.

clip_image002

STAPLES and CorporationCentre.ca, which has registered over 10,000 businesses since 2001, make it easy and affordable to register your sole proprietorship or partnership or incorporate your business online.

Questions? You can learn more here about which type of business makes the most sense for you – or send us your questions. We’ll do our best to answer them.

Which type of business makes the most sense to you?

Posted by Lynnette in Getting Started on March 8th, 2010

, , , , , , , , , ,
0 comments | Share