How to Re-Incorporate Your Business?

What is a continuance (import) of an incorporation and when does it come into effect?

•  A continuance (import) allows an incorporated business to effectively re-incorporate under another act. Because it is already incorporated, the legal process is called continuance. Instead of incorporating again, the incorporated business continues from one act into another so that it is governed by that other act as though it were incorporated under it. The process results in the corporation being exported out of one act and being imported into another.
•  The continuance comes into effect on the date shown on the Certificate of Continuance issued by Corporations Canada.

 Who can continue (import) under the Canada Business Corporations Act?

• An incorporated business must be incorporated under another act that is federal, provincial or territorial or is even from another country. That act must permit the continuance.

 What documents must be filed to continue (import) an incorporated business?

1. A completed and signed copy of Form 11: Articles of Continuance Opens in a new window;
2. a completed and signed copy of Form 2: Initial Registered Office and First Board of Directors Opens in a new window;
3. a NUANS Name Search Report External link, Opens in a new window for the proposed name of the corporation that is not more than 90 days old. If you have received prior approval of the name, attach a copy of the letter from Corporations Canada approving the name along with the copy of the NUANS Name Search Report. If the proposed name is a number name, a NUANS Name Search Report is not required; and
4. the filing fee, although there is no fee if the incorporated business is governed by another federal act.

The articles can be in English or French or in a bilingual format.

If the incorporated business is governed by an act that has been pre-approved by Corporations Canada also include:

• A letter of approval from the legislative authority that administers the act currently governing the incorporated business. This document is not required if the incorporated business is governed by another federal act.

If the incorporated business is not governed by another federal act or by an act that has been pre-approved by Corporations Canada, the following documents must also be filed:

• A letter of approval from the legislative authority that administers the act currently governing the incorporated business.
• A copy of the sections of the act under which the incorporated business currently exists showing that the continuance is permitted.
• A signed legal opinion by counsel qualified to practice in the jurisdiction where the incorporated business is incorporated, stating that: the non-federal law permits continuances to the CBCA, once the incorporate business is continued under the CBCA, the non-federal law will cease to apply to it, and in cases where the other legislative authority does not make it a practice to issue a formal authorization for continuance, the incorporated business meets all the requirements for export.

If you have any questions regarding the continuance of your business, please contact Hugues Boisvert for further information: hboisvert@hazlolaw.com, or 613-747-2459 ext. 304. 

What do I need a business lawyer for?

One of the most common misconceptions many people have about hiring a lawyer is that lawyers are mostly useful after problems have arisen - to settle disputes or to go to court. However, it is equally important (if not more important) to hire a lawyer before you are about to incorporate a business, draft your Will, form a company with your business partners, sign a contract with another party etc.... - having a lawyer before problems float onto the surface not only saves hundreds of dollars on legal fees compared to having to resolve the problems afterwards, it also gives you the peace of mind when matters can be simply left in the hands of a legal professional to handle on your behalf. After all, to prevent a problem from occurring is far less stressful and far more economic than to deal with a problem. 

So what is 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). 

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

Do I need a business lawyer?

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

For any questions on the above, please contact Hugues Boisvert at hboisvert@hazlolaw.com, or call the office at 613-747-2459, ext. 304.

What do you need to know before setting up your business? The types of Canadian business entities and their key features

In Canada, we typically have 4 major types of business entities:

1. Sole Proprietorship
2. Partnership 
3. Business Corporation 
4. Joint Venture 

In this Blog, we are going to provide you with some key features for each of the business entity. Before you set up your business, it is best to know what the implications are for the particular type(s) of business entity you are about to set up. These features include: 1) the formation of the business entity, 2) the structure of the entity, 3) Limited Liability, 4) Ownership of Assets, 5) Income, 6)Income Tax, and 7) Income Splitting. 

For more information regarding setting up your own business, please contact Hugues Boisvert at HazloLaw Corporation - Business Lawyers for Business Owners  

Sole Proprietorship

Formation

• Simple - no legislation 

• No organizational arrangements (bylaws, etc.) are required 

• One owner who is responsible for all business decisions 

• Modest start-up expenses

• All profits accrue to the proprietor 

• Size and complexity can be changed as finances dictate 

• Involvement of family members is relatively unrestricted 

Structure 

• No flexibility 

Separate Existence 

• Business has no separate legal personality; business and proprietor are considered one and the same

Limited Liability

• No limited liability 

• Owner fully liable for all debts and obligations

Ownership of Assets 

• Assets owned by proprietor

Income

• Determined by proprietor, proprietor can determine extent of discretionary expenses, such as CCA and ECE

Income Tax

• Taxed at individuals marginal tax rates

• Disadvantage exists where business income is put back into business because of potential to be taxed at marginal rates greater than 19%

• Losses may be deducted against other income 

Income Splitting

• Pay reasonable salaries to family members 

Partnership

Formation 

• Relationship between 2 or more individuals or companies carrying on business with a view to make a profit 

• General partnership - codified by Partnership Act - agreement between partners can override provisions

• Limited partnership  - must register under Limited Partnership Act (Ontario) 

Structure 

• Great flexibility in internal management strcture 

Separate Existence 

• Does not have a separate legal personality 

Limited Liability

• Does not have a separate legal personality 

• Unlimited liability of each partner, jointly or jointly and severally, for all debts and other obligations

• Partners share equally in losses 

• Partners are equally liable for all debts incurred by partnership while she is a partner

• Partners may become limited, which reduces her liability to the extent of her contribution to the firm

• Limited partner loses her protection if she "takes part in the control of the business" i.e. Takes part in the management of the partnership  

Ownership of Assets

• Assets can be owned either by the partnership or by the individual partners

Income

• Determined at the partnership level 

• Partners share profit/losses

Income Tax

• Partners are taxed on income whether or not it is distributed 

• Partners cannot individually decide discretionary expenses - ie CCA determined at partnership level 

• Disadvantage exists where business income is put back into business because of potential to be taxed at marginal rates greater than 19%

• losses may be deducted against other income 

Income Splitting 

• Can income split by having spouses partners and receive allocation of business income, but must be cautious as ss. 103(1) and 103(1.1) require allocations to be reasonable 

• Kiddie Tax in section 120.4 also applies to partnership income 

Business Corporation 

Formation 

• Incorporate via Business Corporations Act (Ontario) or Canada Business Corporation Act 

• One or more person may incorporate

• Incorporation and filing fees are generally higher than those paid by partnerships 

• Legal fees may also be higher

• Annual returns must be filed in many provinces 

• A corporation wishing to do business in more than one province either has to incorporate federally or obtain an extra provincial license to carry on business in the host province 

Structure 

• Can put in a place parent-subsidiary relationships to accomplish business goals

Separate Existence

• Has its own legal personality - true even of one person corporations

• Has perpetual succession, not affected by changes in, or deaths or retirements of, its members 

Limited Liability 

• Shareholders are not liable for debts or other obligations of the corporation

Ownership of Assets

• Assets can be owned either by the corporation or the shareholders (most often owned by corporation) 

Income

• Corporation (rather than shareholders) determines discretionary expenses

• Shareholders may share after tax profit via dividends 

Income Tax

• CCPC earning income from active business carried on primarily in Canada may be eligible for Small Business Deduction (low rate of tax on the first $400,000 of income earned)

• Note - the SBD represents a deferral of income tax as he/she will pay tax when the after-tax profits are distributed 

Income Splitting 

• Pay reasonable salaries to non-shareholder family members 

• Bonus income to shareholder/employees

• Allocation of income via dividends not subject to reasonableness

• Attribution issues on share ownership 

• Kiddie Tax on dividend distributions to children 

Joint Venture 

Formation 

• Simple - no legislation - agreement between parties 

• Individuals, corporations, or partnership may form a short term partnership (joint venture)

Structure 

• Great flexibility in structure 

Separate Existence

• Does not have a separate legal personality 

• Lasts for a specified duration

Limited Liability 

• Liability may be limited depending on nature of parties involved in joint venture and agreement between parties 

Ownership of Assets

• Ownership of assets by two or more co-owners by two or more co-owners ordinarily involves the holding by each owner of his own separate interest in the property which he can deal with as he chooses, subject to any agreement he may have

• entered into with his co-owners 

Income

• No determination of profit at JV level

• No sharing of profit (sharing of gross revenue expenses) 

Income Tax

• ITA ignores the existence of JV

• CCA taken by each Venturer - not restricted as in Partnership

• Concept of Specified Partnership income does not exist 

• Statutory at-risk rules do not apply to JV

• Statutorily, there is no separate tax year, but CRA allows JV to have separate taxation year from participants

• New participants must acquire an ownership interest in JV property 

• Annual information returns not required 

• Elections that affect computation of income do not need to be jointly elected amongst joint ventures 

Income Splitting

• Splitting opportunities affect by business status of JV

Have you ever considered a dual-will to save thousands of dollars on Estate Administration Taxes?

A dual-will is an effective tool in estate-planning in the province of Ontario. When the owner of the will has significant personal property or owns shares in a private company, it is highly effective to have your lawyer draft a dual-will on your behalf. 

A dual-will contains a Primary Will and a Secondary Will. Generally speaking, a Primary Will deals with assets which involves probate. Probate is a legal process by which an Ontario Court certifies a duly proven Will to be valid. This process requires the Estate Administration Taxes payable on the assets in the estate in order to grant a certificate of appointment of the estate trustees for the purpose of honouring the wishes in the will and commencing the administration of the estate. The Estate Administration Taxes are also known as the probate fees. The probate fees are generally calculated on the fair market value of all assets owned where the first $50,000 is taxed at 0.5% and the excess at 1.5%. In other words, for the first $50,000, there is a $5 tax charge on every $1,000, and $15 on every $1,000 for the remainder assets. It is considered as one of  the highest estate administration tax rates in North America. 

A Secondary Will can contain assets which may legally avoid probate and avoid  probate fees. 

If you are considering hiring an estate lawyer to draft a Will, it is a good idea to consider drafting a dual-will. For more information on dual-wills, please contact Hugues Boisvert at HazloLaw - Business Lawyers for Business Owners. 

What is “Venture Capital”?

       Venture Capital refers to the funds provided by investors (also known as the venture capitalists) to start-up companies and small businesses with the potential for long-term growth. Venture Capital provides the financial resources to start-ups which may not have the access to capital markets otherwise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. Venture Capital helps solve the problems for entrepreneurs who have difficulties raising funds by issuing debt. What entrepreneurs need to keep in mind is that venture capitalists usually have a say in company decisions on top of holding a portion of the company’s equity.

      

           The loans Venture Capital makes to start-up companies are often high in rates with the possibility of an annual return rate up to 50 percent. However, unlike banks and other lenders, venture capitalists can take equity position, which means that you can give a portion of your or other owner’s interest in the company to the venture capitalists instead of paying out cash in the form of interest and principal instalments. 

   
Companies that venture capitalists are most interested in are those who have:

     1. Rapid, steady sales growth;

     2. A new technology or dominant position in an emerging market;

     3. A sound management team;

     4. The potential for being acquired by a larger company or getting publicly listed in the stock market.

    
 There are three different types of venture capital:

  
 1. Private venture capital partnerships are perhaps the largest source of risk capital and generally look for businesses that have the capability to generate a 30 percent return on investment each year. They like to actively participate in the planning and management of the businesses they finance and have very large capital bases--up to $500 million--to invest at all stages.

     

      2. Industrial venture capital pools usually focus on funding firms that have a high likelihood of success, like high-tech firms or companies using state-of-the-art technology in a unique manner.

     

      3. Investment banking firms traditionally provide expansion capital by selling a company's stock to public and private equity investors. Some also have formed their own venture capital divisions to provide risk capital for expansion and early-stage financing.

The way to contact venture capitalists is through an introduction from another business owner, banker, lawyer, or other professional who knows you and the venture capitalist well enough to approach them with the proposition.