Weighing the ups and downs

In the first of a three-part series, a Pitt Meadows lawyer examines reasons for incorporating a business.

BY JOHN BECKER, THE TIMES DECEMBER 22, 2011

Maple Ridge and Pitt Meadows Chamber of Commerce held its first annual Business Summit last month to great public acclaim.

The organizers, Norris Meyers Penny and Becker & Company Lawyers, were also the presenters and addressed a keen business audience.

The benefits of incorporation was one of the topics discussed and will appear in this column in a three part series.

The notion of incorporation isn’t really complicated.

Let’s start with the benefits. There are three important reasons for incorporating your company:

1. Protection of assets and limiting liability.

2. Tax planning.

3. The benefit that a company will exist in perpetuity.

We’ll examine each of these three benefits in each part of the series. Today, let’s look at protection of your assets.

Contrary to popular belief, tax minimization is not the number one reason for incorporation.

Statistically this honour is reserved for protection of personal assets.

When considering incorporation, it is important to take various factors – such as the size of the business, your current tax situation versus the situation after incorporation, the risks involved, the type of business, the number of people involved, and the geographic distribution of your interest, to name but a few – into consideration.

During this process, professional advisors – your lawyer and accountant – will ensure that you ultimately benefit from the incorporation.

After considering all the relevant factors, it’s essential that you’re clear about what you want to achieve and also the benefits of incorporating, before making a decision.

When assets are held (or “owned”) by a company, those assets are the property and under control of company directors and are held separately from personal assets.

In law, this separates your personal finances and assets from those of the company. This protects personal assets from any business failure and against the personal and business failures of your “partners.”

This protection also works in the other direction, as the business is usually protected against personal crises of its directors and shareholders.

Over and above the protection of assets, incorporation limits your personal liability.

Irregular, illegal, or ill considered actions of directors, and in some cases shareholders, are limited to the business and are managed in that legal entity without affecting you personally.

The first step to incorporating is “moving” assets and income streams over to the company.

This process might have tax or other consequences, so do consult with your lawyer and accountant.

On successful completion, your business assets, liabilities, and income streams are for almost all situations separated from your personal assets.

The business liability is limited to the business assets. Now, you’ll want to minimize your tax liability.

This is the subject of our next article in this series.

John Becker has run his own law firm in Pitt Meadows for more than 30 years, focusing his practice on corporate commercial real estate and business succession planning. Send questions to: info@beckerlawyers.ca

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