Business Structures Presented by Brian Rudy, lawyer Small Business - - PDF document

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Business Structures Presented by Brian Rudy, lawyer Small Business - - PDF document

Nov 04, 2023 538 likes •632 views

Cathedral l Place Suite 2300, 92 925 West Georgi gia Stre reet t Vanco couv uver, B.C. V6C 3L2 Tel: 604.685.8186 Fax: 604.685.8187 www.synergyl ylaw.ca We provide business and strategic insight to our clients, having the expertise to

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We provide business and strategic insight to our clients, having the expertise to understand and find creative solutions to solve our client’s challenges.

Cathedral l Place Suite 2300, 92 925 West Georgi gia Stre reet t Vanco couv uver, B.C. V6C 3L2 Tel: 604.685.8186 Fax: 604.685.8187 www.synergyl ylaw.ca

Business Structures

Presented by Brian Rudy, lawyer Small Business BC Education Centre S Y N E R G Y B U S I N E S S L A W Y E R S

Business Vehicles

Most common:

  • Proprietorship
  • Partnership / Limited Partnership / Limited

Liability Partnership

  • Corporation (limited and unlimited)

S Y N E R G Y B U S I N E S S L A W Y E R S

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Long Term Objectives

(beyond turning a profit)

  • Consolidation of business assets
  • Benefit from capital gains exemption on sale
  • f business (ensure you qualify)
  • Benefit from small business tax rates
  • Segregate ventures to ease reorganization,

sale

  • Create liability buffer between businesses

S Y N E R G Y B U S I N E S S L A W Y E R S

Factors to Consider

  • Arrangement among principals, if more than one

person

  • How will business expand and

grow

  • How can business be sold
  • How will business raise capital
  • How will business structure provide for flexibility to

ensure ongoing tax and business efficiency

  • How will key assets be owned

S Y N E R G Y B U S I N E S S L A W Y E R S

Reality Check!

  • What is your budget
  • How much money do you expect to earn in

business

  • What is your lifestyle and personal cash

requirements

S Y N E R G Y B U S I N E S S L A W Y E R S

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Proprietorship

  • Most basic business vehicle
  • Happens by default if the entrepreneur

does not take active steps to structure

  • Corporation can run a proprietorship
  • “Doing business as”….can register name
  • f Proprietorship

S Y N E R G Y B U S I N E S S L A W Y E R S

Proprietorship: Advantage

  • Little or no set-up cost
  • Ability to deduct business losses from
  • ther personal income
  • Reduced accounting fees
  • Greatest freedom from regulation

S Y N E R G Y B U S I N E S S L A W Y E R S

Proprietorship: Disadvantage

  • No liability protection
  • No “image” projection
  • Not always tax efficient
  • Business entity disappears without owner
  • Difficult to raise capital

S Y N E R G Y B U S I N E S S L A W Y E R S

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Partnership

“Persons carrying on business with a view to profit”

  • No active structuring required
  • Not a separate entity from the partners
  • Share one small business tax rate
  • Good structure when all principals are actively

involved in the business and where partners desire single coordinated business

  • Profits are allocated to each partner and this allows

some flexibility in the organization of each partner’s financial affairs

S Y N E R G Y B U S I N E S S L A W Y E R S

Partnership: Advantage

  • Little or no set-up cost (but partnership

agreement recommended)

  • Profits and losses allocated to partners’

income

  • Allows each partner to separately plan their

finances

  • There is flexibility as to the manner in which

profits are allocated

  • Broad management base
  • No public record of partnership agreement

S Y N E R G Y B U S I N E S S L A W Y E R S

Partnership: Disadvantage

  • Joint liability of all partners
  • No liability protection (unless a corporate

partnership or limited liability partnership is used)

  • Can arise unintentionally and without any

paperwork or with poorly drafted paperwork

  • Divided authority
  • Partners can bind other partners without

approval

S Y N E R G Y B U S I N E S S L A W Y E R S

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Limited Partnerships and LLP’s

  • LLP’s allow flexibility of partnerships with

reduced liability to each partner

  • Excellent for large partnerships where not all

partners are incorporated

  • Limited partnerships split management and

investment and are more suited to larger entities that sell limited partnership units to investors and are not common among active entrepreneur’s who are all involved in the business

S Y N E R G Y B U S I N E S S L A W Y E R S

Corporation

  • Most common business vehicle
  • Used in different phases of entrepreneur’s business
  • Limited liability
  • Easy to raise capital
  • Good set of default rules – both in Statute and Common

law

  • Tax free inter-corporate dividends allow money to be

moved throughout corporate structure

  • Various classes and kinds of shares allow re-structuring

to occur on a rollover/tax deferred basis which allow the entrepreneur to re-structure to meet ongoing business needs without incurring tax liability

  • New ULCs used in certain cross-border situations

S Y N E R G Y B U S I N E S S L A W Y E R S

Corporation: Advantage

  • Separate entity with existence separate from

shareholders

  • Settled body of rules that allow parties to

quickly set up a manageable structure without significant effort

  • Limited liability
  • Easier to raise capital
  • Ownership is transferable
  • Provision for specialized management allows

for larger organization

  • Small business tax rates
  • Greater flexibility for income splitting with

certain family members

S Y N E R G Y B U S I N E S S L A W Y E R S

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Corporation: Disadvantage

  • Requires additional legal and accounting work
  • Requires extensive record keeping
  • More difficult to manage overall facility than

when operated by one entity

  • Heavily regulated
  • Personal guarantees often undermine liability

protection

  • High tax rates and possibility of double taxation,
  • r incomplete integration of corporate and

personal tax, for certain types of income, as business grows

S Y N E R G Y B U S I N E S S L A W Y E R S

Basic Elements of Company

  • Shareholders
  • Directors
  • Officers
  • Assets, bank counts, and corporate

property owned by Company, and managed by directors

  • The shareholders own shares, whose

value is based upon the assets of the company, less its liabilities

S Y N E R G Y B U S I N E S S L A W Y E R S

Provincial or Federal Company?

  • Federal Canada Business Corporations

Act

  • British Columbia Business Corporations

Act

  • Companies from other jurisdictions can

register to do business in British Columbia

S Y N E R G Y B U S I N E S S L A W Y E R S

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Sample Phase of Small Entrepreneur

Save money and invest Idea Investment Initial Capital Visit lawyer/ accountant Accrual of profits Entrepreneur pays off mortgage

Proprietor Phase Incorporated Business Holding Company

S Y N E R G Y B U S I N E S S L A W Y E R S

Tax Free Inter-corporate Dividends

OpCo Tax paid on dividends No tax Tax paid on profit $100 HoldCo S Y N E R G Y B U S I N E S S L A W Y E R S

Sample Structure – Senior Entrepreneur

S Y N E R G Y B U S I N E S S L A W Y E R S OpCo 1 OpCo 2 OpCo 3 Trust HoldCo Trust Salary Beneficiary Beneficiary

Trademarks, Real Estate Software

Business 2 Business 3 Business 1

Security Loan Savings and Passive Assets

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Corporat ate Planning g & Wealth th Preservat ation

Merger & Acquisi sitions Shareholder Agreements Debt Financi cing Corporat ate Structuring Trust sts Employee Matters Leasing Matters Estat ate planning / Wills Real Estate