Business owners: How to get money for your business!

There are many different ways that you can finance your business. The number of options can be overwhelming sometimes, as can the criteria of lenders and investors. Financing is not always readily available, but you can increase your chances of accessing financing by preparing. Browse through this information to determine what type of financing is best for your business and study the documents on how to make a pitch to a lender or investor. Government financing Government financing Government departments and agencies provide financing such as grants and contributions, subsidies and loan guarantees. Private sector financing Private sector financing Your business may be eligible for a wide variety of different types of private sector financing, including debt and equity. Personal assets Personal assets Most new entrepreneurs will use some of their own assets to get the business off the ground. Financing for specific demographic groups Financing for specific demographic groups Find out what financing is available for specific demographic groups, including Aboriginal peoples, immigrants, persons with disabilities, women and youth. Financing from not-for-profit and community-based organizations Financing from not-for-profit and community-based organizations Look beyond traditional funding sources. There may be not-for-profit or community-based organizations that can offer you financing or direct you towards financing. Steps to Growth Capital Steps to Growth Capital Learn how to develop the plan, the materials and the confidence to go after the equity financing for your business opportunity. for more info, consult http://www.canadabusiness.ca/eng/82/150/

Business transition via Employee Share Ownership Plans

Question: I would like information on Employee Share Ownership Plans (ESOPs) as a means of business succession. I am especially interested in ESOPs from a tax perspective. Answer: Generally an ESOP allows qualifying employees to purchase shares in their employer's company, with or without monetary assistance from the company. Many companies are using ESOPs as a form of succession when there is no other successor apparent. Whether an ESOP plan is created for succession or employee loyalty purposes, the plan must have a high participation rate to be effective. The type of business is also relevant. If it involves manufacturing and physical assets, valuations are easier to determine. The plan must be administered, which requires some work. That is why many ESOPs involve union structures that can help with administration. ESOPS also have many tax and legal implications for companies and their owners, so anyone considering them should seek professional help. Lawyers, accountants and some BDC consultants can help companies navigate the tricky route to establishing an ESOP.

Business Owners: Why you MUST have a business lawyer on your side.

Legal issues for small business As a business owner, you may think that you don't need the additional cost of hiring a lawyer. That may be a big mistake. Read this document to understand why consulting a lawyer is essential for any small business start-up. Lawyers are trained to interpret the law and those who specialize in business law can be worth their weight in gold. It is less expensive to retain a lawyer up front and have your legal work done properly than trying to hire a lawyer later on to fix problems that may have arisen from lack of legal knowledge. Sometimes procedures and forms for businesses look simple, but legal transactions are often more complex than they seem. When do you need a lawyer? There are a number of situations where you should strongly consider consulting a lawyer. Business Structure One of the first things you will need to do is to decide on the business structure that best suits your needs. Your options can range from sole proprietorships, partnerships, limited or incorporated companies to co-operatives. A lawyer can help you choose the correct form of business structure, based on factors such as the number of people involved, the type of business, tax issues, liability concerns and financial requirements of the firm. Your lawyer can also help you draw up the necessary legal documents that set out the terms of any partnership or other shared ownership, ensure that all parties will be treated fairly and that there is a mechanism for handling any disputes or disagreements. Forms of business organization Find out which type of business structure is right for your business. Buying an existing business If you wish to buy an existing business, you may have to decide whether to buy only the assets of the business or, in the case of an incorporated company, the shares of that company. With any business purchase, you should have a buy and sell agreement, signed by both parties, that spells out the demands and obligations of each, as well as the terms of the agreement (for example, non-competition provision). Buying a business What you need to know before purchasing an existing business. Leasing Requirements Most small businesses will start by taking out a lease for their business premises. However, leases can be one of your largest expenses. Make sure that your lease will be suitable to your business needs, in case you wish to break your lease or expand your business. A lawyer can give you advice on any pitfalls or costs that may be incurred, before you sign on the dotted line. Choosing and setting up a location Trying to decide where to locate your business and how to arrange it once you get there? Review the following resources and consider your options. Contracts When you are drawing up legal contracts, you should get the advice of a lawyer. Some examples of contracts that you should get a lawyer's help with include: •Licensing agreements •Franchise agreements •Employment contracts •Subcontractor agreements •Partnership, incorporation or shareholder agreements •Lease agreements •Mortgage, purchase agreements This is not a comprehensive list. Above all, make sure you contact a lawyer before you sign any contract. Equity Financing If you plan to seek equity financing for your business, it is important to contact a lawyer to help you draw up the terms of the shareholder agreement and/or to review the legal documents provided by a potential investor. Your lawyer can also help you assess the impact of any new shareholder agreement on other obligations and existing contracts with employees, suppliers or financial institutions. Steps to Growth Capital Learn how to develop the plan, the materials and the confidence to go after the equity financing for your business opportunity. Other issues requiring legal advice There may be other issues where you need to seek the advice of a lawyer in order to determine the best course of action. This can include: •Environmental complaints or concerns •Employee problems or conflicts •Disagreements between business partners •Closing your business •Protection of intellectual property Any time you are unsure of the legality of something or the legality of your business practices are questioned, you should be sure to get the advice of a lawyer. How should you choose a lawyer? If you have used a lawyer before for a real estate transaction or other personal issue, he/she may be able to refer you to a lawyer who specializes in small business start-ups or to a business lawyer. Ask your business associates, friends and family for references of law firms they have used and received satisfactory services from in the past. Make sure you have a comfort level with your lawyer, as you will be working closely for the life cycle of your business. Don't hire the first lawyer you speak to. You will have to do some searching for the best expertise you need for your business. Make a list of potential lawyers you wish to meet. Many lawyers will meet you free of charge for the first time to establish expectations on both sides, as long as you don't try to get free legal advice while you are there. You will probably want to have a general business lawyer to handle your day-to-day affairs, but look for someone connected to specialists in specific areas of law who can refer you, as necessary, to someone with more expertise in areas like intellectual property, equity financing, and so on. Make sure you understand your lawyer's billing practices. If you think it may be a little while before revenue comes in to your business, you will have to make arrangements ahead of time with your lawyer, so you are both on the same page.

Q & A - Tips on acquiring a Franchise business.

Question: We're looking to acquire a franchised business. Any tips or due diligence processes that may vary from acquiring a non-franchised business? Answer: The due diligence is the same for any other comparable business; however, the following are some franchise-specific issues. You will want to thoroughly review the franchise agreement, and you should also have it reviewed by a good commercial lawyer who specializes in franchises. Before signing a franchising contract, you should be able to answer the following questions: •Does the franchisee have an exclusive territory? •Is the franchise transferable? How long is left on the existing franchise agreement? •Is the franchise renewable? For how long? •Is it renewable at the franchisor's or the franchisee's option? •What am I getting for the franchise fee? Accounting systems? Operating systems? Lower prices on supplies? •What exactly am I buying? Am I buying the right to use the name? Is the building part of the deal, and do I own the real estate? Will I be paying rent? Confirm that the current franchisee is in good standing with the franchisor, and talk to other franchisees within the group to ensure that there are no hidden issues with the franchisor. For any specific questions, please do not hesitate to contact me.

Five tax benefits every student and parent should learn *

It’s hard to believe that summer is almost over. You know summer is coming to an end when it’s time once again to prepare for that all-important educational experience: the World Scrabble Championships. Make no mistake, the competition is coming up, and the stakes are high. My neighbour, William, is hoping to take home the $20,000 (U.S.) grand prize when he makes the trek to Warsaw six weeks from now. If you’re really good at Scrabble, you can almost eke out a living – if you win every competition every year. William attributes his Scrabble acumen to his very thorough education in university, which opened his eyes, he says, to premium words such as “aureolae,” “qanat,” and “euripi” (my spell-check flagged two of these words as being unknown; that’s how good William is). Is there a young person in your life who is off to college or university in the next week or two? You may want to share with them the career possibilities that their education can afford, and “Scrabble Master” is just one. No? Well, at least share with them some of the tax benefits available to students. Here’s a list: 1. Claim moving expenses. A student can claim a deduction for the costs of moving to school (or home again) provided he earns income while in the new location. Your child should consider earning enough income during the school year, and again in the summer after moving home, to offset those moving expenses (plus enough to absorb the basic personal tax credit and his tuition, education and textbook tax credits too). Sorry, but you can’t claim those moving expenses on behalf of your child, even if you pay those costs. The usual rules for moving expenses will apply to your child. 2. Lend money from your corporation. You can help to fund your child’s education by lending her money from a corporation you own. The loan will be included in her income, but she should pay little or no tax on that amount if she has little or no other income. In fact, given the basic personal credit and tuition, education and textbook tax credits, you may be able to lend your child up to about $20,000 without tax in her hands. Once she graduates and starts working full time, she can pay back that loan, and will be entitled to a deduction for the repayment, at a time when she is earning income and could use the tax savings. 3. File a tax return. Many students don’t bother filing a tax return because they don’t earn enough to pay any tax. Bad move. By filing a tax return your child will create registered retirement savings plan (RRSP) contribution room if he has any earned income at all. When he graduates, he can then make contributions to an RRSP and save tax. Further, filing a tax return should entitle your child to a GST credit worth about $200 or more in cash once he has reached age 19. Finally, your province might offer refundable sales or other tax credits which could provide cash back to your child. 4. Claim tax credits. There are a few tax credits available to students. In particular, a tax credit is available for tuition paid in the year, an education credit based on $400 a month of full-time ($120 for part-time) enrolment, and a textbook tax credit based on $65 a month of full-time ($20 part-time) enrolment. If your child doesn’t have sufficient income to claim all these credits, these amounts can be transferred to a spouse, parent or grandparent (to a maximum of $5,000 in total). Your child can also choose to carry these amounts forward for use in a future year instead. Your child can also claim a credit for interest paid in the year on student loans made under the Canada Student Loans Act, Canada Student Financial Assistance Act, or similar provincial law. Finally, make sure your child claims the public transportation tax credit where applicable. 5. Tax-free assistance. Since 2007 it’s been possible to claim a scholarship exemption to effectively make scholarships, fellowships and bursaries tax-free. To be eligible for this exemption, the program of study has to qualify the student to claim the education amount (that tax credit I referred to above). The Canada Revenue Agency has published a reasonably good pamphlet, publication P105 – Students and Income Tax, which you can access online at cra.gc.ca for details on the scholarship exemption, among other things. *** written by Tim Cesnick and published in the Globe & Mail.

Business owners: Did you review the "buy-sell" clause in your Shareholders Agreement?

It is wise for corporations and their shareholders to consider amending their shareholders' agreements periodically, as they can become out-dated over time. In particular, the structure of the buy-sell component of shareholders' agreements evolves regularly as a result of new tax legislation and interpretations of the law by the Canada Revenue Agency (CRA). This is particularly evident in connection with spousal rollovers after death. Under normal circumstances, when a spouse dies, all property of the deceased can pass to the surviving spouse as a tax-free rollover as long as the property vests in the spouse (i.e. unconditional ownership). The CRA now takes the position that a mandatory buy-sell of the shares of a company from a deceased's estate negates the ability to use the spousal rollover rules. The mandatory buy out, in the CRA's view, prevents the shares from vesting. There is thus no spousal rollover and the full capital gain will have to be reported on the deceased's final return. This result poses no problem if the shares are eligible for the capital gains exemption and the deceased had enough capital gains exemption to eliminate the gain. However, if these factors are not present, the lack of a spousal rollover eliminates the ability of the surviving spouse to use his or her capital gains exemption on a sale. To alleviate this problem, modern shareholders' agreements include what are commonly referred to as put/call provisions. Such provisions give the deceased's estate the right to require the shares to be purchased from the estate, and give the surviving shareholders the right to purchase the shares from the estate. Both parties have the option to buy and sell, but neither is obligated to do so. Buy-sell provisions should also provide enough flexibility to allow either for the company to purchase the shares from the estate, resulting in a deemed dividend, or to have the surviving shareholder(s) purchase the shares directly from the estate, resulting in a capital gain. Shareholders should inquire of their advisors regarding the tax consequences that result from these options. When structuring agreements, it is important to predetermine the buy/sell prices on an ongoing basis rather than using pre-determined valuation formulas, which can often be misleading and not representative of fair market value. Ideally, predetermined prices should be updated annually. Where shareholders are related (non-arm's length), a valuation may be required to support the value, though the CRA might question and challenge a valuation in these circumstances. Although the CRA can challenge an agreement to value between two unrelated shareholders, it is less likely to do so. In any event, no valuations are required until a shareholder dies. It is thus prudent to have a mechanism in place to determine fair market value, ideally by an independent business valuator. Notwithstanding any of the above strategies, care should be taken in implementing any changes to shareholders' agreements. Some older agreements have been maintained in their original form specifically to preserve certain tax advantages that might remain valid even though more current tax laws have changed. For any questions regarding the above and/or if you wish to discuss your situation, please do not hesitate to contact me.

The Tax-Free Savings Account (TFSA) not quite so simple for some

As you may know, the The Tax-Free Savings Account allows you to contribute up to $5,000 of after-tax funds to a tax-free savings account, invest in anything you want, and the income or gains accrue tax-free for life and can be withdrawn tax-free at any time, for any reason. However, several rules need to be followed - Today, I would like to share an excellent article written by Jamie Golombek from CIBC and published in the National Post. &&&& When it was first announced, it seemed so simple. You contribute up to $5,000 of after-tax funds to a tax-free savings account, invest in anything you want, and the income or gains accrue tax-free for life and can be withdrawn tax-free at any time, for any reason. Miss a year? No problem because the $5,000 annual contribution limit automatically carries forward for life. Need to withdraw funds? Piece of cake — you can recontribute them beginning the following year. Sounds like a walk in the park, right? You would think so, but in 2009, the inaugural year of the TFSA, of 4.8 million Canadians who opened a TFSA, 72,786 (1.5%) received a letter in 2010 from the Canada Revenue Agency about possible excess contributions. This was the subject of new special report titled Knowing the Rules issued this week by the Taxpayers’ Ombudsman. The role of the ombudsman includes conducting “impartial and independent reviews of service-related complaints about the CRA,” as well as identifying and reviewing “systemic and emerging service-related issues within the CRA that have a negative impact on taxpayers.” The special report, subtitled Confusion about the rules governing the TFSA, was prompted in part by numerous media reports (several by yours truly) on the difficulties experienced by taxpayers who found themselves in a TFSA overcontribution situation, facing penalties of 1% per month of overcontribution, many through no apparent fault of their own. The issue was a lack of awareness of when a TFSA withdrawal can be recontributed. The ombudsman received complaints from taxpayers who had received letters from the CRA advising that they were being penalized for overcontributing to a TFSA and who complained that “TFSA rules regarding withdrawals and overcontributions were confusing.” The ombudsman’s office began its review in June 2010, but delayed issuing a report until now since the CRA was reacting to complaints by continually updating information on its website and training its staff on the TFSA. The conclusion was that while the CRA has already taken steps to address the issues surrounding TFSA contributions, and continues to do so, it “should have been more proactive in informing Canadians about the tax consequences of the TFSA.” It recommended that the CRA take steps to make Canadians more aware of the information it provides about the TFSA and be proactive in informing Canadians about how to find the tax rules governing the TFSA as well as to continue to work with the financial-services sector to ensure the CRA’s information about the TFSA is widely available. The CRA, in response to the report, issued a news release welcoming the report as an opportunity to improve services to Canadians and developed an action plan to address the recommendations which includes updated TFSA web pages, the issuance of relevant tax tips, community newspaper articles, and communications to financial institutions. Taxpayers who are still uncertain of how TFSAs work should also seek the advice of a reputable financial advisor well versed in the apparent intricacies of what first appeared to be a simple, new savings option for Canadians. **** Jamie Golombek is the managing director, tax & estate planning with CIBC Private Wealth Management in Toronto.