Business owners: 5 resolutions for the New Year!

You are a successful business owner...but are you satisfied with your results?

I didn’t think so. Let me help you make your business even more successful in 2011. Here is how I can help:

1. Setting up a proper share structure

Save on taxes! I’ll say it again, save taxes! Having the right structure allows flexibility in terms of tax planning. While you are only required, in law, to have one class of shares (common), it is always best to provide additional classes of shares so that you will have the needed flexibility. You might want an opportunity to income split between family members and save substantial taxes; to attract new investors and possibly to make use of a family trust. The right share structure will help you save on your tax bill in 2011.

2. Enter a shareholders’ agreement

Because happy endings only happen in Hollywood! Every entrepreneur should understand the importance of a written contract to resolve conflicts. A shareholders’ agreement defines the way in which the company should be governed and managed so as to avoid messy and expensive disputes in the future.

3. Set up a holding company

To protect the assets you need to operate your business. You need operating cash flow, a place of business and equipment to make a profit right? So why would you subject them to attacks from creditors? The best way to protect the assets of an incorporated business is through the use of a holding company (Holdco). And you can also save on taxes because when the operating company has excess cash in the operating company each year, it can pay the excess capital to the Holdco as a tax-free dividend.

4. Use discretionary family trusts to maximize income-splitting

Save taxes (again) thanks to your spouse and children. If you have children and/or are married, you should consider owning their shares through a discretionary Family trust because you can further reduce your income tax bill. The benefits of a family trust include: (a) Income splitting: A well-structured family trust allows for the splitting of income earned by the trust among the various beneficiaries (b) Funding of children’s education at a potential and very low tax rate of 16% instead (c) Multiply the allowable tax free gains (capital gains exemption) should you sell your company: Hence, the $750,000 capital gains exemption may be multiplied by the number of family members who are beneficiaries of the trust, without direct share ownership.

5. Prepare primary and secondary wills

Did you know that you’ll be taxed even when you pass on? Yes, thanks to probate fees! You can save significant probate fees if you have a secondary will? Probate fees are the fees charged by provincial governments to probate your Will when settling your estate. As a result, Ontario’s probate fees for a modest estate of $500,000 now amount to $7,000. In order to avoid probate fees on their corporate holdings (i.e. shares in private companies) and by using the “double will” technique, every shareholder should have a primary and secondary will drafted and executed.