TABLE OF CONTENTS
|Why incorporate?||Annual Requirements of Corporation|
|Disadvantages||Transfer of Existing Business to Company|
|How to Incorporate||Directors and Shareholders|
|Liabilites of Directors||Name vs Number Company|
|Usual Costs||Corporate Wills|
Note to Readers: The information provided in this article is a brief summary for information purposes only and is applicable only to the Province of Ontario. It is not intended to be legal advice. Full and complete legal advice can only be given by a lawyer who has detailed information about your individual circumstances.
- limited liability: the personal assets of the owner are not liable for the debts of the corporation.
- income tax: income of the corporation that is kept in the company is taxed at the lower small business Canadian controlled corporation rate of 23%.
- succession: it may be easier to transfer the shares of a company and the enhanced capital gains exemption of $500,000 is available.
- investment: people and governmental and other agencies may invest more readily when their liability is limited to their investment.
- initial cost for legal, accounting and governmental fees.
- annual costs of maintaining company.
- an additional layer of paper work and bureaucracy.
HOW TO INCORPORATE
An application for articles of incorporation is prepared by your lawyer in cooperation with your accountant; signed by you and submitted by your lawyer to the Ontario or federal government.
NAME vs NUMBER COMPANY
DIRECTORS and SHAREHOLDERS
LIABILITIES OF DIRECTORS
The law imposes on directors many of the liabilities that the owner would have had if the business had not been incorporated, eg:
Your bank will also make the primary shareholders guarantee bank loans.
TRANSFER OF EXISTING BUSINESS TO COMPANY
A transfer of assets of a business normally causes capital gains taxes, recapture of depreciation, income tax on the sale of inventory.
s.85 of the Income Tax Act permits a tax free roll-over if that Act's requirements are strictly followed.
The roll-over requires statements to be prepared by the business' accountant, agreement and transfer documents by the lawyer.
The roll-over is usually done several months after the incorporation to permit the accountant to prepare the statements.
ANNUAL REQUIREMENTS OF CORPORATION
Roll-over Agreement: $350
Annual Minutes: $200-350
Accounting fees: billed by accountant in addition to above
MULTIPLE WILLS AND ESTATE PLANNING - CORPORATE
Many companies have increased in value, creating a problem on the death of the shareholder. If it is necessary to "prove" the will because of other assets such as real estate, investments, etc., then until now it has been necessary to include the value of the company shares in the probate value to calculate the estate administration tax (commonly called "probate fee") which has to be paid at the time of application for what is called a Certificate of Appointment of Estate Trustee. The probate fee is 1.5% of the value of the estate. This is usually just a nuisance tax, but if the value of the company shares is added in, can be quite high. On $500,000 worth of shares, the fee if $7,500, and increases proportionately with higher values.
Recently the government has approved the idea of two wills, one just for the company shares, and one for all other assets. As a result, just the second will needs to be proved and probate fee paid on the value of assets in that will. The other will look after only the company shares, and does not need to be proven, saving the probate fee on the value of company shares.
Both wills can have the same executors and beneficiaries.
There is of course no guarantee that if the provincial government changes, the law won't be changed as well.