Business in the Okanagan continues to succeed despite the global pandemic. There are more and more buildings being constructed and tenants getting ready to move in. The business law team at FH&P Lawyers has been assisting clients for over 100 years in the Okanagan and are rooted in the community. The team provides legal services to people just starting out or that have been around for decades regardless if you are an individual with a small business or a large multi-jurisdictional corporation.
This FH&P Lawyers podcast entitled “Law Talk” will educate listeners on business matters including whether or not to incorporate, estate planning with a business and all other legal issues businesses face. You are welcome to ask our lawyers a question and they will answer it during an upcoming podcast. Email email@example.com with your questions.
Clay Williams: I practice in the area of business law and business disputes. We want to do this podcast on a regular basis and hopefully, we'll educate people that are thinking about incorporating and forming a business and carrying on that business. We will deal with the issues that businesses might face over the course of their life.
Tanvir Gill: I joined FH&P in July and am a second-year. I'm building my practice among other things in business as well so I'm happy to do this podcast with you guys.
Clay Williams: We are going to do this podcast on a regular basis. We do have an email address (firstname.lastname@example.org) so please do feel free to email your questions and we'll try and deal with them on future shows.
Today given the fact that it's the first podcast we thought we should talk about “Why should you incorporate?” If you are thinking about continuing your business or starting a business one of the first things that we are going to ask about is should I form a company to do so? What we're really talking about is what lawyers call a closely held company and that is a company with a small number of shareholders and don't have the requirement, that aren't publicly traded on the stock exchange and that's the type of companies that we deal with mainly here in Kelowna. There are a bunch of reasons that you would want to incorporate and the first is tax reasons. A lot of those tax reasons have been diluted by our current government who is out to close some of the tax loops that we had with respect to income splitting but there are still tax reasons to incorporate. We work with an accountant in order to evaluate whether it is appropriate for you to incorporate.
Tanvir Gill: Do you usually recommend an accountant to your clients that are looking to incorporate?
Clay Williams: Yes, you have to have an accountant, we will insist that you have one in order to incorporate, to carry on a business as a corporation and in fact, will work closely with that accountant not only in the question of why you are going to incorporate, but we will have ongoing questions for the life of that business.
Tanvir Gill: Something else I like to remind clients about when they are deciding whether or not to incorporate is brand recognition. We have a lot of clients that are already working in a business or they are putting themselves out there with a certain name but they have an incorporated, they don't have that brand protection or that name protection in BC so that's something that incorporating will offer.
Clay Williams: Somewhat I suppose. It’s not the level or what a trademark will get you but certainly, you are registered in the corporate registry and publicly searchable that's true so yes brand recognition is something that will help.
I guess the other big reason is limited liability and we need to talk about what a corporation is. So a corporation is a distinct and separate artificial legal entity that has most of the powers of a human being for example the power to enter into contracts and the power to be sued on those contracts. So what that means is that if you incorporate it's the company that enters into what may be some risky business venture and it'll be the company that is sued so you might lose the company but you don't lose the house which is in your name. One of the risky things that came to mind when I was thinking about this was snow removal companies, very very risky and that's because snow removal companies get sued constantly for people that get out of their cars in a parking lot, slip and fall and break their ankles. So while insurance is certainly a part of your risk protection, having a company is another one as well because it is the company that will take that lawsuit. Even if you are not responsible you still have to go through the process of the lawsuit so limited liability a big one. Another one Tanvir is the ability to raise capital.
Tanvir Gill: As a corporation, you can have the ability to raise capital a little bit easier as a borrower, you have the ability to have investors come in and take part in your corporation as shareholders.
Clay Williams: Absolutely right it is a lot easier sometimes to go out and to raise capital, we call it equity financing by selling shares in the company. You can define what that means, if you are just selling shares and you are going to share in the growth of the company then that's what you get if that shareholder wants to be involved in the management for the company that can all be defined as well. It is a great structure in order to help to raise money.
Tanvir Gill: Another pro to incorporating is that your corporation could be a tool in estate planning. Your corporation is going to be around a lot longer than you are as an individual and if you should pass your corporation still exists so it could be used in a way of structuring for your estate planning for the future.
Clay Williams: Absolutely. A company can be immortal but a partnership is not. If you just went and started a company, for example, me and Tanvir started a company and Tanvir would die, well the partnership is at an end, but a company does not necessarily have to end. It is really a great tool for continuing a business absolutely.
Tanvir Gill: Since we are on the basics of what incorporating is and what it offers I think it might be important also just to talk about how we incorporate and legal fees. I get asked all the time if it is expensive to incorporate and can I do it myself?
Clay Williams: Great idea and the answer is yes you can do it yourself.
Tanvir Gill: Should you do it yourself? (laughing)
Clay Williams: You can do it yourself and I think it costs about $350 and you can go onto the government registry and you can incorporate your business. If you come to us we are charging I think about $1650 and what you are paying for is something called the “post-incorporation documents.” Those are the actual resolutions appointing directors and issuing shares and you are getting a lawyer drafted set of articles which sets out how the company is going to be run and the rights and restrictions on the shares. That's important because if you are going to get an operating line or going to get money or anybody scrutinizing the company they are going to want to see that the company has been set up the right way. What we say as lawyers is that we're going to get you at the beginning or we're going to get you at the end. While it's true that you can go and incorporate yourself that means at some point you are going to have to come to a lawyer and we are going to have to recreate that book. So for the price we really recommend coming and letting us incorporate and getting a relationship with a lawyer because and that's why we are doing this podcast for, there is a lot of issues that you are going to face as you operate your business or company. It is sure nice to have somebody that you got a relationship with to discuss those things.
Tanvir Gill: There's also annual filing that we have to keep up with so a lot of people might not be able to do that each year in order to keep your company in good standing that's something that we can easily do at a very nominal fee and we make sure that it is done every year. We email clients documents that need to be signed and it's kept up for you versus we have a lot of clients that maintain their own books and they are not in good standing when we do a search and it's just because they haven't filed the necessary documents each year and kept up with what they need to do.
Clay Williams: What about all the new taxes we are getting, for example, the transparency registry as well.
Tanvir Gill: Yes the transparency registry and corporations have to report on so much more than they did before, so it's much more difficult for people who are already maintaining their own books at the bare minimum of what they had to do. So it is another pro of us doing it for you as we can definitely walk you through not only what legislations are in place but as they change.
Clay Williams: It’s not just lawyer fees with incorporating and the other fees that you are going to incur will be bookkeeping and accounting fees because as a separate and distinct legal entity the corporation also has to file a tax return and that means financial statements so you should budget for that and should talk to your accountant about that ongoing cost as well.
Another advantage to incorporating is that shares can be easily transferred, that means ownership interest can be easily transferred. Doing a transfer to partnership in trust is a lot more work than just transferring a shares interest and I think the reason for that is a corporation has been done a million times, it's been around for hundreds of years, the concept is there and it's something that business lawyers and accountants are very familiar with. So if you have got a group of people engaged in a business venture it's really a lot easier to transfer one of those interests to somebody else to buy and sell it, it's also easier to control sometimes whether that person can sell their interest and to who.
Tanvir Gill: Absolutely. There are so many things to think about when it comes to incorporating. That's why I love the fact that we are doing this podcast too because there's so much information out there that's either just not even known or incorrect so this is a great way to bring the bare basics to the community so that they know just how it works and when it comes to information for incorporating, when it comes to people wanting to buy and sell into business we're here to help.
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