What is the role of a Business Lawyer??

A "business lawyer" or a "corporate lawyer" generally refers to a lawyer who primarily works for corporations and represents business entities of all types. These include sole proprietorships, corporations, associations, joint venture and partnerships. Typically business lawyers also represent individuals who act in a business capacity (owners-managers, entrepreneurs, directors, officers, controlling shareholders, etc.). Further, business lawyers also represent other individuals in their dealings with business entities (e.g. contractors, subcontractors, consultants, minority shareholders, employees). Generally, when I use the term "business lawyer" I think of all of the above.

What types of clients do we represent?

On a daily basis, we represent start ups, family businesses, owners/managers and mid size companies at the regional, provincial, national and international level in a wide range of industries and we advise clients on their legal issue and their day-to-day business issues, including but not limited to: contracts, corporate structure, mergers & acquisitions, corporate reorganizations (family trust, holding company etc.), estate planning and any other corporate matters. Further, our primary focus is on the creation of various tax-effective structures for the preservation, accumulation and transfer of wealth for entrepreneurs.

Do I need a business lawyer?

If you are a business owner and you are concerned with the legal protection of your business and your personal assets, the answer is YES.

A business lawyer can advise you of the applicable laws and help you comply with them.

A business lawyer can help steer you away from future disputes and lawsuits.

A business lawyer can help protect your tangible and intangible assets.

A business lawyer can help you negotiate more favourable business transactions.

Having a business lawyer can also project positively on your business. Further, an established relationship with a business lawyer can be invaluable when you need to turn to someone who knows your business for quick legal guidance.

Over the years, we have realized that many small businesses have genuine concerns about lawyers running up large tabs for unwanted, unnecessary or questionable work. Hence, we are extremely sensitive to that concern and actively work with you to control legal costs. We believe it is in both our interests to discuss the scope of work and the costs involved before we provide any legal services.

You should seek a business lawyer if you or your company are . . .

- Starting a new business; (partnership, sole proprietorship or corporation)

- Issuing shares, stocks, options, warrants or convertible notes;

- Hiring your first employees (i.e. employment agreement);

- Negotiating a new lease;

- Acquiring another business;

- Reorganizing your affairs to save taxes (i.e. family trust, holding company, etc.)

- Transferring your business to you children and/or employee (Section 86 – Estate Freeze)

- Selling your company;

- Succession planning; (estate planning, estate freeze, primary and secondary will, etc.)

- Planning to create and develop new ideas, products and services;

- Seeking to resolve internal disputes. (i.e. shareholders agreement);

- Any other business/legal issues

For more information on the above, call/email our Founder & CEO + Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

Why you MUST have an Holding Company (a.k.a. HoldCo)

Today, I would like to share an excellent article written by Tim Cesnick, clearly explaining the advantages of Holding Companies.  At HazloLaw, we advise clients on a daily basis about the necessity of putting in place this type of structure and we also suggest to add a Family Trust to your current structure.  Read our related blog on Family Trust.

HOLDING COMPANY 
This summer when you're standing around the barbecue with your business-owner neighbours, impress them with your knowledge of tax planning.

I can tell you from experience that you'll bore them to tears with the conversation, but they'll thank you later when the tax savings start rolling in. Specifically, share with them that holding companies can help them to defer tax. Here are the highlights.

THE RULES

If you happen to own a corporation that carries on an active business, give some thought to setting up your affairs to allow for a deferral of tax.

How? By establishing a holding company to own the shares of your active business corporation (ABC).

You see, if you own the shares of your ABC directly, then any payment of dividends from that corporation to you will be taxable in your hands personally in the year you receive those dividends.

If, on the other hand, you have a personal holding company that owns your shares in your ABC, you can pay a dividend to your holding company that will, in most cases, be tax free to your holding company.

It's subsection 112(1) of our tax law that allows, in most cases, your holding company to claim a deduction for taxable dividends received from your ABC. And, as long as your holding company and ABC are "connected" under our tax law (which will be the case in the vast majority of situations), you'll avoid another tax called the Part Four tax.

By passing some of those earnings from your ABC to your holding company, you'll defer tax, which is essentially the difference between the tax paid by your ABC on its profits, and the amount of tax you would have paid had the profits been paid out immediately to you as a bonus.

The tax deferred is approximately 30 per cent of the taxable income in most provinces for someone in the highest tax bracket.

THE STRATEGIES

What strategies should you be thinking about?

Multiple shareholders: If you're one of multiple shareholders in your ABC, setting up a personal holding company for each shareholder can provide flexibility to each of you.

Think of each holding company as a tap to control the payment of dividends to each of you personally.

Your ABC can pay dividends to each of the holding companies on a tax-free basis, and then each holding company can pay dividends to its shareholders based on his or her personal cash requirements.

Splitting income: Your holding company can be owned by more than one person in the family.

Your spouse, for example, could own some shares. This will allow you to sprinkle dividends to your spouse or others in the family so that the tax burden on those dividends can be shared.

It's not always advisable to issue shares in the holding company directly to your children (and if they're minors, this isn't possible), and so a family trust can be utilized, which brings me to the next strategy.

Establish a trust: I really like this structure. The shares of your ABC can be held by a family trust.

The beneficiaries of the trust will include you, your spouse, your children (regardless of their age), and your holding company.

Now, any dividends paid by your ABC to the trust can be distributed out to your holding company as a beneficiary of the trust, and you'll achieve the same tax-free payment to the holding company as you would achieve if the holding company owned the shares in the ABC directly, provided the two companies are "connected."

The advantages, however, include: The ability to sprinkle dividends to family members or the holding company as beneficiaries of the trust, at your discretion; the ability to multiply the lifetime capital gains exemption on a sale of the shares of your ABC (assuming the shares qualify for the exemption); creditor protection over the property of the trust, including the shares of the ABC, among other benefits.

Protection from creditors: Any excess profits of your ABC can be paid to your holding company as dividends, and can be lent back to your operating business on a secured basis, if the cash is needed for the business. This will protect those excess profits from other creditors of the business.

Retirement nest egg: The accumulation of assets inside your holding company can become the type of retirement nest egg or "pension" that you will need to look after yourself during retirement

For more information on the above, call/email our Founder & CEO + Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

Understanding the multiple sources of Financing for your Business

Acquiring a business often requires multiple sources of financing. This can be a complex undertaking, especially in cases when more than $500,000 is needed. In most cases, there are four types of lenders and investors willing to finance an acquisition.

Lenders interested in fixed assets

Acquiring a business often involves the purchase of buildings or equipment. Your tax advisor might suggest you take out a separate bank loan for this part of the project, either from your bank or jointly with other financial institutions.

The Canada Small Business Financing Program makes it easier for small businesses to obtain financing from banks up to a maximum value of $500,000, of which $350,000 can be used to finance the purchase or improvement of equipment and the purchase of leasehold improvements.

Lenders interested in the whole package

BDC often supports expansion projects with term financing. Unlike conventional bank loans, this formula allows flexible repayment terms. Another advantage is that a BDC loan will not be called without a valid reason.

Companies that have a competitive advantage in a fast-growing industry should consider subordinate financing. Under this formula, financial institutions lend higher amounts than they would under other circumstances and accept subordinate security in return. But such arrangements will always require a higher return for the lender, who may also ask for royalties on future sales or stock options.

Equity investors

Depending on your situation and the amount you need to raise, you can seek out venture capital from investment banks, institutional investors and mutual or labour-sponsored funds. Your new financier will become a major financial partner, taking an ownership stake in your company and the right to name some members of your board in exchange for a significant injection of capital. Industry Canada's web site has more information on this subject.

Venture capital firms invest across all sectors of the economy but target only businesses with excellent growth potential. Sometimes technology-oriented venture capital companies also consider outright acquisitions. For example, they will look favorably on buying a leading-edge business with products almost ready to put to market that would complement a more mature company's product line.

Strategic investors

These investors focus on certain types of businesses and are often faster than others to grasp developments within a particular industry. These are often groups of professionals from the same industry who keep close tabs on their market and are therefore quicker to recognize risks and opportunities. Major corporations also sometimes acquire equity in companies whose growth they believe it is in their interest to support. The goal can be to exploit a promising niche in their industry, for example, or to improve their firms' technological know-how. Regardless of the type of financing you have in mind, management consulting companies and accounting firms specializing in acquisitions can provide invaluable outside advice. Their contacts with investors and financial institutions often help them quickly identify people who are interested playing a role in an acquisition. Getting specialists involved at the outset also greatly simplifies tax reporting.

For more information on the above, call/email our Founder & CEO + Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

When buying a business, is the new owner liable for any outstanding liabilities??

QUESTION:

When buying a business, is the new owner liable for any outstanding liabilities such as debt and lawsuits from the previous owner?

ANSWER:

Acquisitions are very common today: one business - usually a corporation - takes over or buys out another business and takes its place in the market. An acquisition is when one business, usually called the "successor," buys either another company's stock or assets.

Asset Purchase

Generally, in an asset purchase, the buyer-company is not liable for the seller-company's debts and liabilities. However, there are exceptions, such as: when the buyer agrees to assume the debts or liabilities; that is, as the buyer, you could assume some or all of the seller's debts in exchange for a lower sales price.

The asset acquisition does not require the approval of the buyer's stockholders, but the seller's stockholders do have to approve the sale of all or most of the assets. Stockholders who oppose the sale usually have the right to the "appraisal value" of their stock, which is determined by an independent third party.

Stock Purchase

If you acquire a business through a stock purchase, that is, buying all or substantially all of the company's stock from its shareholders, your company "steps into the shoes" of the other company, and business continues as usual. The buyer takes on all of the seller's debts and obligations, whether they're known or unknown at the time of the sale.

A known liability might be a bank loan that is recorded in the company's books and records. An unknown liability might be money owed to employees or contractors that has not been properly recorded and has been overlooked by both the seller and the buyer. But, the most dangerous unknown liability often arises from the seller's pre-sale activities.

For example, if the seller had been making and selling paint for 15 years before the buyer acquired it through a stock purchase, the buyer can be liable for the injuries sustained by a painter who claims that the seller's paint contained toxic chemicals, even if the painter's injuries did not show up several years after the stock purchase.

A stock purchase requires stockholder approval, and stockholders have the right to oppose the sale and to have the value of their stock appraised by an independent party.

In both cases, it is highly recommended to contact a lawyer in order to define your best purchase option.   For more information on the above, call/email our Founder & CEO + Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

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

Legal issues for business owners and entrepreneurs.

 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 proprietorship, 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.

 For more information, call and/or email our Founder & Ceo and Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304

Business Owners: Are you a candidate for a Corporate Reorganization and, in the process, eligible to save thousand of dollars in taxes?

As a business lawyer, I work with entrepreneurs and business owners on a daily basis. For the vast majority of them, their most valuable asset is their corporation. For obvious reasons, their number one priority is on income earning activities, such as generating sales. Attention to such activities is, of course, a practical necessity and a hallmark of success. However, the utilization of a proper corporate structure to reduce tax exposure is, unfortunately, often overlooked. Remember, as the old saying goes, “It is not what you make, but what you keep.” Business owners must realize that a proper structure can save a substantial amount of taxes, which will greatly benefit themselves, their family and their business. Further, the costs of implementing these types of structures are usually easily justified by the annual tax savings. The purpose of this article is to explain to you the benefits of a corporate reorganization and to help you determine if you are a good candidate for implementing such structure.

What is a Corporate Reorganization?

A Corporate Reorganization is a legal way to reorganize and restructure your company so that you can reap the rewards of the existing tax regulations - often resulting in annual tax savings in amounts upwards of tens of thousands of dollars. Why do I need a Corporate Reorganization? As a business lawyer, I sometime see situations where businesses are set up with a certain structure to take advantage of particular circumstances that were relevant at the time they were set up. But as we all know, situations change over time. It is common that the conditions which resulted in a particular corporate structure no longer reflect what is best for the corporation or its owners, resulting in a somewhat cumbersome and inefficient structure, particularly from a tax point of view. Every day, I work with companies, who are in this situation and help them to reorganize and restructure their affairs, which, in turn, allows them to save a substantial amount of money.

There are many situations where a corporate reorganization is recommended, such as, corporate tax planning, creditor proofing or in order to reach other organizational goals. Sometimes this process will even involve the transfer of assets on a tax-deferred basis from one entity to another, or from one corporation to another. Every person and corporation is different. Accordingly, when analyzing whether or not a corporate reorganization is appropriate, it is important to investigate all relevant options thoroughly. Given the complexities and technicalities of such an undertaking, it is highly recommend one obtains qualified profession help. This ensures the business owner obtains proper advice and implements the best possible plan to meet the their objectives.

 Based on my experience, there are many reasons companies may need to be reorganized. Some of the common reasons, which may apply to you, are as follows:

 (1) To implement a proper share structure; Having the right structure allows flexibility in terms of tax planning. While you are only required, by law, to have one class of shares (common), it is always best to provide for the possibility of additional classes of shares. This allows a corporation the flexibility to modify its ownership structure, should the need arise. For example, in order to save on taxes, you might want to take advantage of income splitting available to eligible family members. Or you might need to issue a new class of shares in order to attract new investors. Or you might want to make use of a family trust, discussed further below.

 (2) To establish and implement a Family Trust; If you have children and/or are married, serious consideration should be given to owning the shares of your business through a discretionary Family Trust. 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 tax rate of 15.5% instead of 48% (a savings of up to $34,500 per $100,000 of profit); and, (c) Multiply uses of the one-time capital gains exemption, should you sell your company, allowing the $750,000 capital gains exemption to be multiplied by the number of family members who are beneficiaries of the trust, without direct share ownership.

 (3) To create holding companies for tax and creditor-proofing reasons; Generally, a “holding company” is a corporation which is placed between a business, the “operating company”, and the individual shareholder. One of the foremost principles of Canadian taxation is that dividends are allowed to flow on a tax-free basis from one corporation to another. Accordingly, after-tax profits accumulated in the operating company can be distributed to the holding company as tax-free dividends. Funds transferred to the holding company in this manner are better protected from claims made by any of the operating company’s creditors. No one ever expects to face such a claim; however, the reality is that, for a variety of different reasons, creditor claims are made on a daily basis. As a result of these claims, many unprepared business owners have seen a lifetime of accumulated profits vanish, often due to a single claim. It is for this reason that use of a holding company is especially attractive to companies where the risk of lawsuits or litigation is significant. Additionally, if necessary, funds held in a holding company can be lent back to the operating company on a secured basis in order to retain protection from creditors.

 (4) To carry out and implement a succession plan through an estate freeze (by using Section 86 of the Income Tax Act). For business owners, tax minimization is central to any plan. One popular tool is an estate freeze. An estate freeze is part of a corporate reorganization that allows business owners to freeze the value of the company at today's value. As a result, future increases in the value of the company can be transferred to the benefit of children, key employees or a trust. Such a freeze allows business owners to minimize capital gains tax due under the deemed disposition rules upon their death and provides a deferral mechanism of taxes. A freeze in combination with the creation of a discretionary trust can provide a flexible framework that can lead to further tax minimization.

If you think you are a candidate for a corporate reorganization or would like to know more, please feel free to contact me. I can advise on whether a corporate reorganization is required and the benefits of such reorganization, as well as manage its implementation and execution. As you can imagine, a corporate reorganization has many tax and legal implications for companies and their owners, so anyone considering it should seek professional help.

 For more information on the above, call and/or email our Founder & CEO and Business Lawyer, Hugues Boisvert at hboisvert@hazlolaw.com or +1.613.747.2459 x 304