Re-organization
Expand your business – How do I go about adding additional owners to my business?
Where reorganization is due to expansion, particular care must be paid to including new people and working capital while maintaining your primary goals as originally established. This often includes creating a special class of shares that protect the investor while not interfering with management of the business if the terms of repayment to the investors are being met. Similarly, when you want to reward key employees and ensure their continued involvement with the business, it is necessary again to create a share structure that will allow the employees to realize their goals as part owner while maintaining the ability of management to continue without undue interference.
How do I involve my Family in my business?
Often, as a business grows, new people are added. These people may be investors, partners, employees, or family members of the owner i.e. spouse and children. In the case of investors, partners and employees, restructuring the business is generally done for the purpose of advancing the growth of the business. While in the case of family members there is usually some form of estate planning in progress. Other times the nature of the business has changed sufficiently to convert a proprietorship or partnership into a limited company.
What steps should I take if I am thinking of selling my Business?
When a sole proprietorship or partnership is converted to a limited company, the Income Tax Act of Canada allows the owner(s) to sell his, her or their business to a company controlled by him, her or them with no immediate tax consequence. This is referred to as a rollover under sections 85(1) or (2) of the Income Tax Act. It is one of the more complicated sections of the Income Tax Act. We strongly suggest you consult a professional advisor before proceeding to transferring your unincorporated business to a limited company. Once the business is owned by a company it is possible to sell the shares and benefit from the capital gain exemption of up to $883,000 (2020). Failure to comply with the relevant Sections of the Income Tax Act could result in significant taxes in your own name and/or penalties and interest owing by your new company to the Canada Revenue Agency (CRA).
Are there steps I can take in my Business once it’s successful to reduce my taxes?
When re organization is done for estate planning, lawyers must work closely with owners and their accountants to ensure that the business’ value is maximized while the owners tax position is minimized and while again ensuring that his or her primary goals are maintained. Often, as a business develops, a re organization of the company would allow for subsequent generations to participate in the equity of the company and avoid any taxes on the death of the older generation is desired. This is often referred to as an “estate freeze” which locks in the current value of the company to the current owners and then lets the next generation participate in the company’s future growth. This type of re organization is often accompanied by the creation of a family trust. For more Information on family trusts we refer you to the family trust section.
