INC Business Lawyers - News & Views

Why is PST on legal services a good thing? Letter to the editor, Vancouver Sun

noreply@blogger.com (Donald L. Moir) — Wed, 31 Aug 2011 17:42:00 +0000

To the editor:

Now that the PST is to be restored, perhaps someone who voted for that result, or the government, will explain why it is a good thing that, almost alone out of major service providers, clients of lawyers will again face PST of 7 percent on legal fees.

People will remember that, back in the 1990s, the NDP changed sales tax policy, to extend PST to legal services. But the Liberals have not reversed that decision.

With PST, business clients either pass the extra cost on to their customers, or lose business because of higher prices, or absorb the tax but have less money internally with which to increase wages for employees or invest in their business.

Clients who are consumers will face a slightly small tax burden, because PST does not apply to disbursements such as photocopying or couriers, only a minor part of most legal bills. But it is unlikely those savings will be enough to pay the higher costs they will face from business because the PST is to be restored.

Yours,

Donald L. Moir
INC Business Lawyers

Canadians and LLCs - Don't Use Them in the US

noreply@blogger.com (Donald L. Moir) — Wed, 17 Mar 2010 21:10:00 +0000

When a Canadian business owner thinks about setting up in the US, often the first question is what kind of corporate structure should be used.

In simple terms, the choices available for a business structure in the US are similar to the choices available in Canada. The reason why different structures exist is that they allow different combinations of limited liability and tax treatment for the entity and its owners.

Unincorporated: which is done by being a proprietor (if there's a single owner) or through a general partnership (if there's more than one owner). The drawback of this choice is that the business owner does not obtain the benefit of limited liability. The proprietorship or partnership itself is not a taxable entity; the net income or loss is passed through to the actual owners and taxed in their hands personally.
Limited partnership: A limited partnership does gives liability protection to the limited partners, but only if those persons do not participate in the business. The general partner takes on all the liability -- and for that reason is often an incorporated entity to protect whoever is actually behind the GP. But this is a somewhat complicated structure to set up and for a typical business owner is probably not going to work. Tax treatment is that same as for an unincorporated business.
Corporations: In Canada, we generally have only one flavour. It's a limited liability entity that is taxed at the corporation level, and distributions to shareholders (dividends) are then taxed at the shareholder level. In the US, there is one kind of corporation as such, but under their tax system, a corporation may elect to be a "C" corporation or an "S" corporation. A "C" corporation means that the entity itself pays regular corporate income tax. An "S" corporation is treated as a flow-through entity. Note, however, that the "S" election is no good to anyone other than a US taxpayer. (So Canadian businesses can ignore that distinction.)
Hybrid entities: These aren't available in Canada, but they are available in the US, usually under the name "limited liability companies" (LLCs). Their beauty is that they provide the same limited liability that shareholders of corporations have, but with the flow-through tax treatment that an unincorporated business has.

Now before we all decide to move permanently to the States to take advantage of the LLC structure, be aware of this key difference: the US corporate tax system allows for significant double taxation, and Canada's tax system (on the whole) doesn't. Double taxation means that the corporation will pay tax at the usual rates on its net income, and then the shareholder will pay tax again if dividends are distributed to the shareholder from that net income.

In the jargon of the tax policy specialist, Canada's tax system is "integrated". In general terms, integration means that the total tax paid to all levels of government on any given net income will be roughly the same, regardless of whether the income is earned through a corporation and then paid by dividends to the shareholders or whether the income is earned through an unincorporated business.

From the number of accounting and tax law firms in Canada, you've probably guessed by now that it's more complicated than that, but on the whole in Canada the existing levels of corporate income tax rates, dividend tax credits, and personal income tax rates do an excellent job of preventing the double taxation that might otherwise happen in the US. Integration means that our income tax legislation is more complicated, though.

The tax policy choice in the US has been to allow double taxation if a corporate structure is used (their tax code is already complicated enough). The US solves the double tax problem by providing a greater choice of tax treatment and legal entity than we have in Canada.

A further complication for a country's tax system arises when a business goes cross border. When that happens, the results from one tax system (the US) have to be made to work with the results from an entirely different tax system (Canada's). For that reason, Canada has entered into tax treaties with many other countries around the world, including the US. One of the main reasons behind such tax treaties is to prevent double taxation between countries. In general, with a tax treaty in place between two jurisdictions, if a business pays tax in one jurisdiction, the other jurisdiction will recognize and credit any foreign tax paid.

All of this discussion is a long introduction to point the reader to a good article at today's Globe & Mail newspaper making the point that Canadian business owners who wish to set up operations in the United States should form a US corporation and not a LLC structure.

If a Canadian taxpayer uses an LLC to do business in the US, the tax treaty system breaks, and using the LLC will expose the Canadian to significant double taxation.

For that reason, Canadian businesses are usually best off forming a standard US corporation that is then owned by a Canadian corporation. The US corporation (which will choose the "C" election for US tax purposes) will pay tax in the US, and pay dividends up to the Canadian parent. There may be some withholding tax on the dividends (at the rate established by the US/Canada tax treaty), but any such tax paid will qualify for a credit for Canadian tax purposes.

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noreply@blogger.com (Donald L. Moir) — Thu, 11 Mar 2010 01:32:00 +0000

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What I Learned from Gordon Ramsay's Kitchen Nightmares

noreply@blogger.com (Donald L. Moir) — Thu, 11 Mar 2010 01:18:00 +0000

You can observe a lot by watching - Yogi Berra

I like to watch - Chance the Gardener, from the Peter Sellers movie, Being There

Gordon Ramsay is a controversial guy, not everyone's cup of tea, but the wise business owner shouldn't be afraid to get ideas from any legitimate source.

Ramsay's television show Kitchen Nightmares is one of the better shows out there for a small business owner. Sure, he's a chef and tells restaurant owners how to run their businesses. And maybe your business isn't a restaurant. But that doesn't mean you should ignore what Ramsay says.

The show of course has a formula: Ramsay investigates the restaurant of the week; (usually) blows up at the owner for a deplorable state of operational and financial matters; assesses how committed the owner is to change; (most times) gets the owner to buy into making much-needed changes; implements the change; and then tests it out in the closing section -- usually with success.

At a more general level, here are some of the key business issues the show addresses. These are applicable to any business:

Motivation: This is the gut-check question, and in Ramsay's interaction with the restaurant owner, it's usually the first issue that he addresses. Does the owner have the caring, the commitment that will be needed to turn the business around. Some of the restaurant owners may have started out with passion, but it's clear the daily grind of hassling operations and losing money has worn them out. Warren Buffett talks about tap-dancing to work each day.
Staff issues: Once the owner's motivation is back on track, the next challenge is usually to deal with performance of the staff running the business. In a small business, this sometimes means that the owner has been blind to what good performance actually means (all those scenes where Ramsay is cleaning out disgustingly old food). But sometimes the change to higher levels of performance reveals a poor choice in the current employees, so that one or more have to be fired. For some owners, this is a difficult decision. But if an employee is holding back your business, you've got to do what's best for the business -- and getting rid of an employee that doesn't fit the business is probably a good thing for the employee, even if it hurts in the short term.
Appearance matters: Any business that interacts with customers has to look the part. This is a part of the show that is more a magic transformation: Ramsay sends his team in, and literally overnight they do a full makeover on the restaurant decor. Partly, it's a matter of caring enough to notice details (such as outdated signs), and partly it's a matter of being able to bring fresh eyes to a tired presentation.
Business process matters too: The final issue dealt with is to simplify and refresh the menu. Can your business be re-jigged so that production is simpler but better for your customers? In the restaurant setting, this often results in cost savings because of less wastage, or Ramsay's insight that a particular cuisine will work better given the kind of customers that are avialable to the business.

I've been watching the effect of a changeover in the cafe downstairs. For the last few years, it was run by a couple as a Chinese restaurant. New owners took over, with a totally different kind of restaurant idea: paninis, fresh salads, and coffee. They are drawing customers -- local workers -- that I never saw before when the Chinese restaurant was operating.

Not all TV is trash -- use it to get better ideas for your business!

Small office phone systems - Part 2

noreply@blogger.com (Donald L. Moir) — Fri, 19 Feb 2010 19:32:00 +0000

The story so far: A small law firm needed to change its phone system. A hardware PBX system was out of the question as too cumbersome and too costly; the home-office solutions were too small and insufficiently featured; and a virtual PBX solution had the drawback of creating an ongoing expense.

But the research into a virtual PBX solution revealed a potential open-source PBX software and hardware solution. Open-source PBX software meant that acquisition and ongoing expenses would potentially be nil. In particular, Asterisk telephony software, the leading open-source solution, was of high interest.

As Linux-based product, Asterisk can be installed on a re-purposed desktop computer. To ease the roll-your-own aspect of things, we researched various installation and operation tutorials at sites such as Nerd Vittles and solution providers such as PBX in a Flash.

Asterisk certainly provided the features we were after in a phone system. But difficulties arose on the hardware side, specifically the need (or wish) to interface the PBX box with our telco land lines. Without getting into the technical details, the main solution would have required buying interface cards, such as those offered by Digium, which can be inserted into a desktop computer case like any other hardware interface card.

Another solution, which on a cost-benefit basis, is reasonably priced, is the Warp appliance, from Pika Technologies, an Ontario-based company. Their Warp appliance consists of a special purpose computer that runs Asterisk software and comes with various options for telco interface cards.

In theory, with software PBX you wouldn't need a telco interface card; it did seem to be possible in theory to run a completely network-based solution, using VOIP lines instead of telco land lines and plugging in the handsets to the network (or even giving up handsets as such; and deciding to run things through a software phone, such as X-Lite, on your computer). Unfortunately, cutting the cord to a true land line just wasn't a worthwhile technical option. At least in our experience, VOIP simply isn't ready for prime time -- or at least to the exclusion of giving up telco land lines.

In the end, we decided that we didn't want to spend the rest of our days installing and running a phone system. An all-in-one solution was what we really needed.

In the end, that solution turned out to be Microsoft's Response Point phone system. They did the software and partnered with three hardware providers.

We managed to find a supplier, who directed us to the particular hardware solution we chose: an all-in-one box running the Response Point software and with an interface card large enough to handle the telco land lines that we decided to stick with.

Installation was quite straightforward once the boxes arrived; it took about a day.

Sad to say, of course, no sooner was the thing installed than Microsoft discontinued the project.

So we slipped in under the wire. So far, we're pleased with Response Point as a solution. Some of our small business clients have noticed the change to our phone system, and asked us about it. Which tells us there is something to it.

Small office phone systems - Part 1

noreply@blogger.com (Donald L. Moir) — Mon, 15 Feb 2010 18:58:00 +0000

In the summer of 2009, we had to replace our phone system, such as it was.

I find phone systems to be mysterious. For all the simplicity that we've grown up with in terms of picking up the handset and dialing, if you actually have to go out looking for a phone system, it's a murky part of technology.

Since moving our offices to Richmond in May 2003, we had been using a 4-line Panasonic model, which had a base unit which we had bought with one wireless handset. After six years, the handset was failing: the buttons were refusing to work; and the wireless aspect had never been that good. Used handsets were available on Ebay, but that didn't seem to be a solution.

Although in recent years, the phone manufacturers had created a ton of 2-line systems, readily obtainable from any electronics store, there is absolutely nothing out there for a small business. If your operations were larger than the 2-line, you had to make a jump to some kind of PBX (private branch exchange) installation.

Given the improvements that computers and networking had experienced over the last decade, it's surprising that phone systems are still opaque to a typical small business. We're not alone in that view. But not a lot of 4-line systems are out there. We looked at a review or two of the latest Panasonic offering, and were heartily disappointed. You'd think if the phone manufacturers could put together a 2-line home system, they could simply expand it to a 4-line system for a small business. But the world doesn't work that way in this little area of technology.

We had used a PBX system during our dozen or so years with an office in downtown Vancouver. That kind of installation requires a dedicated box in a utility room, and then you populate each desk with a handset. Our old PBX system, that did serve us well for many years, we had bought used, but it's not the sort of thing you can move easily if you change offices.

We had some kind of budget for new phones, but didn't want to spend the kind of money that a standard hardware-based PBX installation would need.

We looked at the software-based PBX solutions (sometimes called virtual PBX), such as RingCentral, but they didn't seem to apply to Canada or, if they did provide service to Canadian small businesses, didn't seem to be the kind of solution for us.

But the virtual PBX systems did lead to further research and ultimately our buy decision, which I'll cover in the next post.

Unlimited Liability Companies for British Columbia

noreply@blogger.com (Donald L. Moir) — Thu, 12 Apr 2007 18:08:00 +0000

Good news for US businesses or US residents looking to do business in Canada!

On March 29, 2007, the BC government passed into law amendments to the Business Corporations Act (BC) that will allow the incorporation of unlimited liability companies (ULCs) in BC. The amendments aren't in effect as of yet; a staffer we spoke to at the BC Corporate Registry said to expect this for the fall of 2007. (It is possible right now to register in BC an out-of-BC created ULC. In Canada, this means either an Alberta ULC or a Nova Scotia ULC.)

Highlights of the new amendments include:

The filing process will be simple. As with ordinary corporations, an online filing will be available, so the creation process for ULCs should be as smooth as it is for ordinary corporations now. The bad news is that the government will charge a premium for a ULC incorporation: a filing fee of $1,000 compared to the regular corporation filing fee of $350. Compare Nova Scotia, which used to charge $4,000 to incorporate a ULC, plus annual filings of $2,000, but which in light of competition from BC and Alberta for ULCs has recently dropped the incorporation filing fee to $1,000, though they raised the annual filing fee of $2,750. Alberta does not charge a premium for a ULC. Only the ordinary corporate filing fee ($100) and annual report filing cost ($0, but you have to pay a service provider to do the filing) apply.
BCULCs will be required to have either "Unlimited Liability Company" or "ULC" in their corporate name. The terms are interchangeable with each other for all purposes. A numbered BCULC must use the phrase "B.C. Unlimited Liability Company" in its name.
The notice of articles for the ULC and all share certificates issued by the ULC must contain the statement: "The shareholders of this company are jointly and severally liable to satisfy the debts and liabilities of this company to the extent provided in section 51.3 of the Business Corporations Act."
The amendments do allow conversions. An existing BC limited liability corporation can file to convert into an unlimited liability company (with the shareholders thus becoming liable for all debts and liabilities existing whether before or after the date of conversion). And a BCULC can convert into a regular corporation, but the legislation seems to keep the shareholders liable (when the company eventually liquidates or dissolves, if it ever does) as if the conversion had not taken place.
Foreign corporations are prevented from amalgamating into British Columbia with a BCULC and continuing as either a regular BC company or BCULC. Amalgations that result in a BCULC are restricted to existing BC companies. This means that a foreign corporation would first have to continue into BC as an ordinary BC limited company and then amalgate with another BC company to effect the creation of an amalgamated BCULC. It is also possible to amalgamate a BCULC with another corporation (a broader term than "company") to end up with an amalgamated BC limited liability company, but the same rules about shareholder liability apply to the amalgamated entity.
Transfer into BC (continuance in) of foreign ULCs is allowed only if they come from Alberta, Nova Scotia or another jurisdiction specified by regulation.

Advantages of ULCs arise primarily for US corporations and individuals who want to carry on business in Canada. The advantages are primarily tax-driven (from a US tax perspective only). In Canada, any ULC will be treated as a regular corporation for corporate taxation and other purposes.

As to the unlimited liability of shareholders, BC has gone for the Nova Scotia approach, which is more favourable than the Alberta approach. Under the Alberta ULC legislation, shareholders are on the hook from day one. In BC and Nova Scotia, shareholders of a ULC are only on the hook once the company decides to stop operations and wind up.

For BCULCs, note that all existing and even former shareholders bear the liability. There are exceptions for former shareholders who transferred their shares one year or more before the date the company goes into liquidation (a formal court process for winding up the company) or dissolution (a less formal process for winding up the company).

"Joint and several" liability means that the existing and qualifying former shareholders as a group must make good on the debts and liabilities and each particular shareholder is also liable. This allows the creditors to go after the shareholder with the deepest pockets. That shareholder would then in turn have a right to claim contribution from the other shareholders. Note that this liability does not depend on the class of shares held by a particular shareholder. However, one wonders whether, as between different classes of shareholders themselves, share rights could specify how the various classes of shareholders contribute to the liability.

In practice, a Canadian ULC is often set up so that the only shareholder is an intermediary US corporation or LLC with limited liability itself, and whose only role is to hold the shares in the ULC. However, where a US individual holds the ULC shares directly, they will want to be careful about the umlimited liability aspect of Canadian ULCs.

The new amendments are good to see. They show a certain level of competition between provinces for business, and a general openness to foreign, particularly US, business in Canada. We'd be pleased to help with any inquiries about forming a ULC whether in BC or another part of Canada.

Employees Profit Sharing Plans in Canada

noreply@blogger.com (Donald L. Moir) — Fri, 09 Mar 2007 23:44:00 +0000

An Employees Profit Sharing Plan (EPSP) is a plan set up by an employer to benefit one or more of its employees . They're a tool offering benefit to both the employer and the employee.

Those who like to look at source documents can consult: Income Tax Act (Canada), s. 144; Income Tax Regs 212 and 1500; and Interpretation Bulletins IT280R, IT379R, and IT502; which can be found through the Canada Revenue Agency (CRA) website: www.cra.gc.ca.

EPSPs are set up as a special form of inter vivos trust. Typically, the trust will need three trustees, who can be the key managers of the business. There is no need to register an EPSP with CRA, although EPSPs that use a certain profit-sharing formula ("payments out of profits") must make an election with CRA to qualify the plan as an EPSP. The election requires that the EPSP be filed with CRA. A further benefit to the employer is that, beyond certain annual maintenance requirements, the EPSP trust itself does not have to prepare and file the usual federal trust income tax return with CRA. Annual maintenance requirements includes making allocations to the employees who belong to the plan and issuing T4PS Summary and Supplementary slips.

The benefits of EPSPs to employers include:

motivating key employees through a profit-sharing arrangement;
the ability of the employer to deduct contributions of the employer to the EPSP, so long as the contributions are made within four months of the financial year of the employer;
a tax deferral advantage arising from the fact that contributions to EPSPs are not subject to withholdings for income tax, CPP or EI contributions;
in a closely held corporation, the ability of the plan (if set up this way) to loan plan monies to the corporation for use until the monies need to be returned to the plan.

The benefits of EPSPs to employees include:

a tax deferral advantage gained from the lack of a withholding requirement when the employer contributes to the plan; and
income splitting opportunities, if there is a high-income employee and lower-income employees in the same family. Money that might otherwise have to be paid to the high-income employee can be contributed to the plan and then allocated to the lower-income employees, to take advantage of lower rates of tax.

The tax deferral benefit works best for employers whose financial years finish in September to December of the year. For example, an employer with an October 31, 2006 year end can wait until February 28, 2007 to contribute to the EPSP and still get a deduction for 2006. The trustees of the plan can then allocate the contribution among the plan members in 2007, and the plan members will not need to report that income until the following April, when they file their 2007 tax returns. The plan contribution can be put to work for those extra roughly 12 months and earn income before the government gets its portion.

For example, an employer with, say, $700,000 of pre-tax income would probably bonus down (ie, issue a bonus to certain employees) about $300,000 to get to the $400,000 small business deduction limit. With an EPSP, that $300,000 amount could be contributed to the EPSP without immediate deduction and be put to work for about 12 months before it was paid out to cover the tax bill for the employees.

Note, however, that the employer contributions must actually be money, not just a bookkeeping entry. The EPSP rules set a minimum annual contribution (for example, plans with an "out of profits" formula might use 1 percent of employee's salaries); and the amount of the contribution must be calculated only by reference to the profits of the employer and not by reference to other factors. Profits must be calculated in the ordinary way; and if the employer is profitable, the contribution must be made; deferrals or suspensions of contributions are not allowed. Conversely, if the year results in a loss, a contribution cannot be made. However, the source of funds for the contribution are not restricted: they can come from cash on hand, or borrowings, or whatever source of monies the employer can find. Subject to the minimum contribution requirement, EPSPs can achieve a certain flexibility in the amount of contribution to be made in a profitable year. Be aware, though, that some believe that the reasonableness provisions in the Income Tax Act (Canada) may limit the maximum amount that could be contributed to an EPSP. And CRA does scrutinize contributions that are made as part of plan to diminish CPP or EI contributions.

One drawback for employees who belong to the EPSP, though, is that they must report their share of the annual contribution plus any income or gains made by the EPSP trust in the year. Earnings of the trust that are eligible dividends or capital gains or losses retain their character when the employee reports them (that is, the employee can access any available dividend tax credit, and the lower rate of tax on capital gains). However, the employee will be reporting income and paying income tax for which he doesn't necessarily receive immediate cash, which could work hardship unless suitable arrangements are made with the employer and EPSP to provide the employee with the monies needed to pay the tax bill.

The tax deferral advantage and income splitting possibilities mentioned above can provide the necessary benefit to justify setting up an EPSP. If you're interested in setting up an EPSP for your business, please call or e-mail us.

Canada Small Business Financing Act

noreply@blogger.com (Donald L. Moir) — Tue, 10 Oct 2006 17:50:00 +0000

It does take money to make money. The founders of a start-up business will be the first to provide money, but once they've drawn on their credit cards or mortgaged their house and run through their family and friends, where will they turn to next? Most businesses won't want, or be able, to attract financing from venture capital firms or angel investors, or go to the trouble of trying to raise equity through a more or less formal share offering under the securities laws. So, in Canada, many small businesses turn to the banks.

Some businesses will have the wherewithal to be able to borrow money from the banks on ordinary terms. For those that qualify, though, some may want to see whether the loan program under the Canada Small Business Financing Act will work for them. (This Act is the successor to the Small Business Loans Act.)

For example, during 2004 - 2005, just over 11,000 loans were made under the program, with an average size of $94,000. A further 314 capital leases were allowed under a related pilot project, with an average value of $90,000 per lease. Start-ups (not defined) are said to account for 60 percent (almost $623 million) of the loans made under the program, so it's definitely worth a shot, even if you aren't fully established.

The CSBFA works like this:

Only small businesses qualify, which means businesses with revenues, or expected revenues, of under $5 million per year, but excluding always farms and charitable or religious organizations.
The borrower must meet certain eligibility criteria.
The maximum size of the loan is $250,000. (You can see that this amount will not be enough for certain businesses.)
The loan must be used for only specified purposes, and the loan must not exceed a certain proportion of the entire cost of those purposes.
A lender's loss on a loan that goes bad is guaranteed by the federal government (provided certain conditions are met, such as the lender paying an initial registration fee plus an annual maintenance fee -- both of which would no doubt be passed on to the borrower). The government initially limited its total liability under this guarantee to a total of $1.5 billion. (I haven't checked to see whether this amount has since been updated.) And there's a sliding scale of liability: during any five year period, a lender can recover 90 percent of the first $250,000 of losses under this program dropping to only 10 percent for losses over $500,000. There are other provisions in the Act that further limit the government's liability. So the Act provides some incentive, but not a huge incentive to lenders. And there have been defaults: In 2004-2005, the government paid out on 1,639 claims at an average cost of $47,342 per claim ($77.6 million) for loans issued in the 1999 to 2005 period.
The Act penalizes borrowers for misrepresentations or for disposing of assets put up as security for the loan. The penalties are for fines up to $50,000 or $500,000 or for imprisonment up to 6 months or 5 years, or both a fine and imprisonment. A three-year limitation period applies.
The government must review the program every 5 years. The first review was for the 5 year period ending in 2004. The report confirmed that the program was useful and effective. (Though in 20 years of law practice, I must admit I've never dealt with someone who had used the program. But maybe know that you know about it, you can ask and see whether it will work for your business.)

The Act has regulations attached to it. The regulations set out the details of the loans allowed under the program. These details include amount, duration, repayment terms, interest rate, security, and so on. Highlights of the details include:

The maximum duration of a loan is 10 years, including all renewals, if the lender allows renewals.
All loans must be secured, and have first position, or in some cases equal rank to other first position security.
The purpose of the loan must fall into these three main categories: buying or improving real property owned by the borrower and used in its business; obtaining or improving leasehold improvements for premises leased by the borrower and used in its business; or buying equipment. A portion of the loan can also be used to pay the required registration fee under the Act. There are restrictions about the kind of and use of real property a loan may be used for.
Usual due diligence by the lender is required as to credit references for the borrower, appraisals and other information.
The lender can, but is not required to, take personal guarantees. Any such guarantee must be limited to no more than 25 percent of the loan amount, plus applicable interest and legal fees and costs of collection. A guarantor may be released if the loan is in good standing and the borrower has repaid at least 50 percent of the principal. (Who says the government doesn't have a sense of humour?)
If default occurs, the lender may give the borrower a cure period. If the default isn't cured, the lender can pursue its various remedies. However, for partnership or proprietorships, outside of the assets used in the business, the lender may only seize personal assets not worth more than 25 percent of the original amount of the loan (plus applicable interest and legal fees and costs of collection).

You can find out more about the program at the website of Industry Canada, the ministry of the federal government that is responsible for the program. Who knows, it might just be the sort of money that will bump your business to the next level.

Withholding Tax on Payments to Non-Residents

noreply@blogger.com (Donald L. Moir) — Tue, 03 Oct 2006 22:03:00 +0000

We incorporate a lot of Canadian corporations that have non-residents as directors or shareholders of the corporation. And, although it's easy for most non-residents to create or take part in Canadian companies, it's perhaps not so easy to be aware of the Canadian income tax rules that apply when the company wants to pay money to or for non-residents. One of those rules has to do with "withholding tax", which is sometimes called "Part XIII" tax for the section of the Income Tax Act (Canada) in which it arises.

Before we go further, let's clear up some terminology. In this article, "Canadian corporation" means a corporation or company formed either federally in Canada or in any one of the provinces or territories of Canada. (We tend to favour British Columbia companies, because they don't require non-residents to find a Canadian-resident director to be part of the board of directors and because the BC corporate laws are relatively more flexible than the laws in other parts of Canada.) A "non-resident" means someone who files their income tax returns outside of Canada.

The general rule is that whenever a Canadian corporation makes almost any kind of payment to a non-resident, the corporation must pay a tax, called a "withholding tax", to the Canadian government.

The kinds of payment that attract withholding tax include: interest, dividends, investment income, rental income, royalties, mutual fund distributions, pensions, annuities, and payments for acting services in films or videos.

The default rate for withholding rate is 25 percent. This rate can be reduced if a tax treaty exists between Canada and the country in which the non-resident lives. (This will be the case for most major countries, including the US, the UK and many Asian countries.) For example, under the Canada/US Tax Treaty, the rate for withholding tax on most payments of dividends is 15 percent and, in some cases, is as low as 5 percent.

In other words, if your Canadian corporation has to pay some dividends or interest to a non-resident, be sure it withholds the required Part XIII tax and pays only the net amount to the non-resident. If the non-resident is a member of a treaty country (such as the US), they will usually be able to claim a credit for the withholding tax, so that there's no double-taxation to the non-resident on these payments from the Canadian corporation.

You can learn more about withholding tax directly from the CRA website and their booklet, T4061 Non-resident Withholding Tax Guide or by calling the International Tax Services Office toll free at 1-800-267-3395 (in Canada and the United States), or from other countries at (613) 952-2344 [phone numbers current as at October 2006].

Let's review some highlights from the T4061 Guide:

To begin remitting, your Canadian corporation must apply for a non-resident tax account number, using Form NR75, Non-Resident Tax Remitter Registration Form.
Remittances can then be sent in using the voucher on the back of Form NR75 or by using Form NR76, Non-Resident Tax – Statement of Account.
Each remittance of withholding tax must be made by the 15th day of the month following the month in which the payment was made to the non-resident. Failure to pay the remittance on time can result in penalties and interest.
If the non-resident who received the payment thinks too much was withheld, he can apply to the Canadian tax department for a refund using Form NR7-R, Application for Refund of Non-Resident Tax Withheld. This has to be done no later than two years after the end of the year in which the original withholding happened.
By March 31 of each year, the corporation must file an NR4 Return, with the NR4 Summary Slip and NR4 Slips. The NR4 Summary Slip just summarizes the information on the NR4 Slips. You'll prepare one NR4 Slip for each non-resident who was paid out of the corporation, and send them a copy of that slip for filing with their personal income tax return. There are penalties for late filing of the NR4 Return or slips, and for sending out the slips late to a recipient.
Remember that, in Canada, directors of companies can be held personally liable for failing to make the company pay required income tax.
There are special rules, which can reduce the amount of tax withheld, for people receiving rental income from Canadian real estate or pension income, and for actors. If you fall into any of those categories, make sure you get proper professional advice.

In any event, the take-away message from today's article is that if you're a non-resident receiving payment from a Canadian corporation or a Canadian corporation having to pay non-residents, make sure you're up to speed on Canadian withholding tax. Remember that tax authorities do share information between countries, because of the tax treaties, so don't think you can ignore withholding tax requirements.

Complying with withholding tax requirements is definitely an area where you'll want to get professional advice, on both sides of the border, so you and your Canadian corporation are fully aware of the all the rules you need to follow to stay out of trouble with the tax authorities.

Corporate Dissolution - Income Tax Filing Requirements

noreply@blogger.com (Donald L. Moir) — Tue, 12 Sep 2006 21:21:00 +0000

In a previous article, I showed how to dissolve your corporation. In this article, let's look more closely at the Canadian income tax filing requirements that arise when you kill your corporation.

Keen students will remember that in order to dissolve your British Columbia company, it is necessary for one of the directors to swear an affidavit saying that all of the net assets of the company have been distributed to the shareholders and that the company either has absolutely no liabilities (that is: zero, nada, zilch) or if there are remaining liabilities that provision has been made to pay those liabilities.

One of the potential liabilities a dissolving corporation faces is Canadian corporate income tax. So the cautious director, asked to swear the affidavit in support of dissolution of the company, will want to be sure that the company's corporate income tax account has been properly closed down.

Closing down this account involves filing three main documents:

the final T2 corporate income return up to the date of dissolution;
a request for a clearance certificate; and
the articles of dissolution or application to dissolve the company that was filed with the relevant corporations office authority (in BC, the Corporate Registry).

The main corporate income tax return is the T2 Corporation Income Tax Return. Companies that have been inactive or have had little activit, that have operations only in one province, and that meet certain other qualifications may be able to get by with filing the T2 Short Form. However, the key point is to know that your company must file one of these returns, even if it has been totally inactive. Unlike individuals, Canadian tax laws require all corporations to file income tax returns, even when there is no revenue or no income.

If you don't let the tax department know that your company was dissolved, they will continue to think that it exists, and the company will still be liable to file all required tax returns. This can expose the company directors to personal liability under the Income Tax Act, since, in general, the Income Tax Act makes company directors personally liable for defaults of the company.

The request for a clearance certificate is important to do because once it will take the company off the hook for distributing its net assets to the shareholders. Failure to obtain a clearance certificate can make the directors personally liable for unpaid taxes, interest and penalties if they distribute assets on dissolution. The reasons why and requirements for applying for a clearance certificate are set out in Information Circular IC82-6R5r. (Don't be afraid of the document; it's only three pages long.)

You apply for a clearance certificate using Form TX19 (Asking for a Clearance Certificate) and supplying the information they ask for (usually the distribution plan for the assets and information proving you're a proper representative of the company). Once issued, the certificate will confirm that the company has paid all its taxes that were due up to the requested date of dissolution or that the government has received adequate security for taxes that are owing at or before that date.

Obtaining a clearance certificate will also provide some comfort to the shareholders of the company. Creditors of BC companies, including the tax department, can chase shareholders who receive assets of a dissolved company for up to two years after dissolution. So every shareholder of a dissolving company should make sure that the directors do their job.

This article has focused on the corporate income tax account. You'll also want to close down any other tax accounts, such as for provincial sales tax or GST.

Doing all this may seem like extra work (and it is), and it takes extra time because of the processing in the tax department. Ultimately, though, the procedure is for your protection, as a director or shareholder of the company, so think twice before skipping this step when you dissolve your corporation.

Issuing Shares - The Basics

noreply@blogger.com (Donald L. Moir) — Tue, 25 Apr 2006 22:11:00 +0000

Always remember that your corporation is a separate legal entity from anyone else -- even yourself. It's a legal "person" unto itself. However, because a corporation is also just paper, it needs flesh and blood people if it's going to accomplish anything in the real world.

So an active corporation will always need a full cast of supporting characters:

directors: who are ultimately responsible for the management and operations of the corporation;

officers: who are appointed by the directors and look after the day to day operations;

customers, employees and suppliers: people or entities who are bound to the corporation through contractual arrangements; and

shareholders: who own the corporation and are usually responsible to appoint the directors.

The ownership interest of the shareholders is contained in the shares of the corporation. In law, a "share" is simply a bundle of intangible rights (such as the right to vote or the right to receive dividends or the right to receive the net assets of the company on its dissolution). Because no one can see a share, a company issues "share certificates" which represent the shares named in the certificate, such as "100 Class A Common shares without par value". Applicable corporate legislation usually sets out minimum requirements for the wording that share certificates must contain. In addition, often securities legislation requires certain wording (called "legends") be printed on the face of a share certificate, to comply with particular securities law requirements.

Although the articles or a unanimous shareholder agreem View Blog ent might be different in any particular situation, most corporations formed in British Columbia will make the directors responsible to issue shares. A company will need to issue at least some shares, so that one or more persons will be the shareholders of the company and entitled to exercise the rights needed to run the company (at a minimum, to appoint a director who can then manage the company).

All share issuances involve at least two considerations: corporate law considerations; and securities law considerations.

Share Issuance - Corporate Law Considerations

Most share issuances will involve these minimum steps. Please note that what follows only skims the surface, and leaves out some considerations that might apply in particular circumstances. Share issuances are an area where you really need to understand the legal implications of what you're doing and the legal requirements necessary to have a valid share issuance. It's hard enough to do business, let alone have to deal with unhappy shareholders who also have a right to get their money back because their share issuance was botched.

So, from the corporate law side of things, a company will need at least these items:

Make sure the shares exist: Before issuing shares, make sure that the authorized capital of the company is up to date, and that there are sufficient numbers of unissued shares to be taken up and that the shares to be issued have the rights that the proposed shareholders are expecting. The BC Business Corporations Act does contain provisions to correct invalid share issuances, but why not be correct from the start?

Make sure the issuance is allowed: Sometimes the articles of the company or an agreement or a court order might prevent shares from being issued or require that certain conditions be met (such as a right of first refusal) before shares can be issued to new shareholders

Subscription agreement in writing and signed: Take the trouble to get incoming shareholders to sign a written subscription agreement. At a minimum, the agreement will set out the number and kind of shares that the incoming shareholder is buying and the price per share. Very often, provisions related to securities law considerations are included.

Actual payment for the shares: BC corporate law requires that payment be received by the company before any shares can be validly issued. Payment can come in any one or combination of three forms: i) money actually paid to the company; ii) past services actually performed for the corporation (which have to be valued by the directors); and iii) property (which, again, must be valued by the directors of the company).

Directors resolution: Once the subscription agreement has been signed by the proposed shareholder and payment has been received, the directors of the company can accept the subscription agreement by signing it on behalf of the company. To actually issue the shares, the directors then pass a directors resolution that sets out the issue price of the shares, the name of the shareholder to whom the shares are issued, and the number and kind of shares being issued.

Update corporate records: The central securities register must be updated after each share issuance with the name and address of the new shareholder and other details of the share issuance. This register is kept in the corporate records book for the company.

Share certificate(s): A shareholder is entitled to receive a share certificate for his or her shares in the company. Although the shareholder is entitled to receive such a certificate personally, in real life the certificates tend to go missing, so it's better to keep them in the corporate records book for most closely held companies.

Share Issuance - Securities Law Considerations

Securities laws are complex. They're definitely something not to be attempted at home. Although you can do some research yourself on websites such as the BC Securities Commission, save yourself some grief and get legal advice if you have any securities law questions -- and even if you think you don't have questions. Securities laws change frequently and contain all sorts of traps for the uninformed or unwary.

In Canada, each province has its own securities laws. There has been ongoing work over the past two decades to harmonize the laws, but many weird and seemingly irrational differences, large and small, remain. At a minimum, these securities law considerations will apply:

How many jurisdictions are involved?: At a minimum, in the easiest case, there will be only one jurisdiction involved. This will be the case where the issuing company and the incoming shareholders all live in the same jurisdiction (for example, everyone lives in BC and the company is a BC company). But if the company is in one jurisdiction and even one new shareholder is in a second jurisdiction, the company will have to comply with each jurisdiction: the company's home jurisdiction and the jurisdiction of the new shareholder.

Is an exemption available?: In Canada, the general structure of each province's securities laws is to absolutely prohibit any shares from being issued, subject to two exceptions:
- Prospectus requirement: One exception is to go to the trouble and expense (tens of thousands of dollars, minimum) of preparing and issuing a "prospectus". A prospectus is a long, complicated document that sets out the business of the company and contains the company's financial information, and that is reviewed and accepted by at least one securities commission. An IPO (initial public offering) means a share issuance done under the prospectus requirement.
- Exemption requirement: The other exception is to find a provision in the securities legislation that exempts the company from the prospectus requirement. There are a half dozen or so exemptions that a private company might be able to use. But when using an exemption, it's up to the issuing company to meet the terms of the exemption exactly. And some of the terms can be troublesome; for example, a company might be required to prepare an "offering memorandum" (a document like a prospectus, but a little less troublesome to prepare), and to meet tight deadlines for filing notice of the issuance with the applicable securities commissions.
Most privately held companies will rely on the "private issuer exemption" when issuing shares. Because it's the easiest exemption to use, it's one you want to keep, so be careful to comply with its' requirements, which include:
- After the issuance, the number of shareholders in the company cannot exceed 50 persons, not counting real employees, and counting joint shareholders as one shareholder
- The incoming shareholders must not be a "member of the public", which is a term defined by general securities laws.
- The incoming shareholder must not be outside of a circle of people who are fairly close to the founders or directors of the company. This circle is generally limited to certain family members or close personal friends or close business associates of existing members of the company, but can also include accredited investors (generally, fairly wealthy people with assets or annual income over a certain value).

If you're considering issuing shares, we'd be pleased to help steer you through the potential minefields of securities and corporate considerations.

Annual Maintenance for Companies

noreply@blogger.com (Donald L. Moir) — Tue, 18 Apr 2006 21:30:00 +0000

Having your own corporation will introduce you that species of government beast known as red tape. A BC company will face annual filing requirements under various statutes, provincial and federal. The main annual filings are:

corporate income tax return;
filing T4 income tax withholding report for your employees (including the owner);
goods and services tax (GST);
Workers' Compensation Board annual return;
filing requirements imposed by applicable regulatory bodies (eg, motor carrier; real estate; medical doctors; dentists; accountants; lawyers; securities industry); and
Corporate Registry (annual report) filing.

Today, I want to focus on this last requirement: filing the company's "annual report" in the Corporate Registry.

Some people confuse this filing with the requirement to file their corporate income tax return, probably because "annual report" sounds a lot like something they heard in relation to tax filings or possibly from public company documents. But they're not the same thing at all. The T2 corporate income tax return must be filed with Canada Revenue Agency under the Canadian Income Tax Act. Unlike individuals, a corporation must file its tax return each year, even if there is no activity. For corporations that qualify, a "T2 Short Return" can be filed, which reduces the paperwork needed. Either kind of return is due within six months after the corporation's taxation year-end.

The requirement to file the "annual report" with the Corporate Registry arises under the Business Corporations Act (BC). The document is a simple form that sets out the name of the company, the address of the registered office of the company, the original date of incorporation and the anniversary date for which the filing is being made, the incorporation number, and the full names and addresses for each officer (not director) of the company. The form must be filed online, within 60 days of the anniversary of the company's incorporation date. The current filing fee is $45. It is something you can do yourself, with a credit card, through Corporate Online. If you do file yourself, be sure to either print or save to your hard disk a copy of the filed annual report. Put the printed copy of the annual report under the "Documents Filed with Registrar" tab in your corporate records book.

Be aware that if you don't file the annual report for two years in a row, the BC Registrar of Companies will be able to strike your company, which means your company will die, with potentially unwanted consequences.

Filing the annual report is good, but that's not the end of the story. Just before you file the annual report, be sure to create and get signed the required "annual general meeting" shareholder and director resolutions for your company. These are resolutions allowed to be passed in writing instead of going to the trouble and expense of having a real shareholders' meeting, in the way that a public company, such as Telus or Intel, is required to do. Having a formal shareholder meeting involves writing up a formal notice of meeting, proxy, and management information circular, mailing those documents to the shareholders, and then having a physical meeting within the time limits required by applicable law.

A typical AGM consent shareholder resolution does four things:

elects or re-elects the directors for the upcoming year;
accepts the report of the directors;
accepts the financial statements for the company; and
waives the appointment of an auditor for the company for the next financial year.

The AGM consent director resolution is passed by the newly (re-)elected directors and appoints the officers of the company for the upcoming year. The information from this resolution is what goes into the annual report that gets filed online. Note that it is no longer mandatory in British Columbia to have corporate officers (such as a President or Secretary). However, we find that in a company's dealings with third parties it can often be useful to have at least a "President" appointed, so give some thought to maintaining at least one officer.

In order to effectively waive the auditor of the company (something you'll want to do, since for most private corporations audited financial statements are too expensive), remember that all voting and even non-voting shareholders must sign the resolution waiving appointment of the auditor. The waiver is required because the default under the Business Corporations Act BC is for the company to have an auditor.

Once both resolutions are signed, be sure to file them under the correct tab in your corporate records book. The shareholder resolution goes under the "Shareholder [or Members] Minutes" tab and the director resolution goes under the "Director Minutes" tab. Once you have a copy of these resolutions, they can be done quickly each year, as the information in them will only change where there is a change to the shareholders, directors or officers of the company.

Doing the annual shareholder and director resolutions and filing the annual report is something that will keep your company in "good standing" and thus alive for as long as you choose to have the company. The documents are fairly simple. If you need our help, be sure to call or e-mail us.

Amalgamating: The urge to merge

noreply@blogger.com (Donald L. Moir) — Mon, 10 Apr 2006 17:18:00 +0000

Time to keep a promise. In December, I wrote about 4-1/2 ways to kill off your company, legally. I mentioned amalgamation as the "1/2" way. So here's the scoop.

Amalgamation is the word for the legal process where two or more corporations become one continuing corporation. The "one flesh" concept (see Genesis 2:24) of what marriage means is one analogy that judges have used to describe amalgamation. But, these days, marriage isn't that good an analogy; we tend to focus too much on the separate identify of husband and wife (or spouse and spouse, seeing as I'm writing this in Canada). A better analogy (though one some judges have criticized), then, is to consider two streams flowing together as one. The individual identity of each stream is lost; and, in a certain sense, you have a brand new single entity -- not brand new in the sense of being without a history, such as a new-born infant. No, the continuing corporation is rather that sadder and wiser girl: it retains all the strengths but all the weaknesses and liabilities of the corporations from which it arose.

Why Amalgamate?

A variety of reasons are possible, but the primary reason is to simplify the corporate structure. Perhaps a subsidiary company is no longer useful, but can't be simply dissolved. Amalgamations can also be used in purchase situations, to merge a target corporation with an acquiring corporation. Obviously, here, you'll need to be aware of the income tax consequences of the result. A third reason might be to re-jig the shareholdings in a corporate structure, as there is some leeway to re-organize the share structure in the continuing corporation and make it different than the share structures of the amalgamating corporations.

Amalgamation Procedures

In brief, there are three different procedures that can be invoked in order to amalgamate. Some require more paperwork than others, and all involve, at the end, a filing with the Corporate Registry before they'll be effective. For more information about any of them, please contact us.

Short-form amalgamations: These occur in two flavours: vertical and horizontal. "Short-form" means that there's less paperwork involved, so the costs are less and the amalgamation can be finished sooner. The procedure can be done without an amalgamation agreement or obtaining shareholder approval.
- In a vertical short-form amalgamation, a wholly-owned subsidiary company (or more than one) gets absorbed into its (or their) parent holding company. The holding company must be incorporated in BC; the subsidiary companies can be incorporated anywhere. The resulting continuing company will have the identical share structure, and directors and officers, of the parent company. The shares of the subsidiary company will be cancelled, without compensation. Only the directors or shareholders of the parent company need to approve the amalgamation.
- In a horizontal short-form amalgamation, two subsidiary companies amalgamate into one continuing subsidiary company. All amalgamating companies must be owned by the same corporation (that is, not by an individual). All of the shares of each amalgamating company must be held either by the parent or by the other amalgamating companies. The amalgamating companies must be incorporated in BC, but the parent company can be incorporated anywhere. The shareholders or directors of each amalgamating company must approve the amalgamation. And one company must be chosen as the primary company (that is, the company that will continue as the amalgamated company once the amalgamation takes effect).
Non-court approved amalgamations: You will use this procedure for amalgamation when neither of the short-form procedures apply and there is no need (as is usually the case) to seek court approval of the amalgamation. These amalgamations have more paperwork than the short-form amalgamations. All participating companies must obtain shareholder approval for the amalgamation and must enter into a written amalgamation agreement, which must contain certain specified provisions, and have a director swear an affidavit as to certain facts. Where the required affidavit cannot be sworn, it will be necessary as well to formally notify creditors of the proposed amalgamation. This procedure gives the most flexibility to the amalgamating companies in terms of structuring the continuing company's directors, officers, articles and share structure.
Court approved amalgamations: Companies will want to use this procedure, despite the extra expense involved in going to court, where the affidavit required for the non-court procedure cannot be sworn or where complying with the creditor-notification requirements would be too troublesome. This procedure is also used in some public securities transactions, involving US securities law. In addition to having an amalgamating agreement approved by their shareholders, the amalgamating companies will need to prepare court documents: a petition and supporting affidavit or affidavits. The application to court must be brought within the required deadline (not less than 6 days nor more than 2 months after the last company approved the amalgamating agreement). Creditors and shareholders each have the right to ask to be notified of the court date and to show up to object to the amalgamation.

Amalgamating your company with another is not an every-day kind of corporate transaction. But be aware of the procedure, and who knows--maybe your circumstances will require it one day.

Following your passion & Choosing niches

noreply@blogger.com (Donald L. Moir) — Mon, 03 Apr 2006 16:34:00 +0000

Is following your passion really such a good idea? It's advice that's frequently offered to people thinking about starting their own business. Two articles from the business section today's Vancouver Sun newspaper provide some helpful and cautionary lessons for those who are considering that advice.

One person started a chain of low-carb foodstores in and around Vancouver, riding the wave of popularity that arose around 2004 when Atkins Diet emerged from many years of fringe obscurity. She had lost weight herself following Atkins, and wanted to share that success with a broader public. She mortgaged her house, raised investment money from friends and family ($200,000, the article said), and opened four retail stores selling low-carb products. For a while, business was good. At the height, she was grossing $150,000 a month.

Unfortunately, the Atkins Diet craze peaked and then crashed. The business owner had to close her stores one by one, and at the end had to break the lease on her main store. She ended up in court, being sued by creditors for tens of thousands of dollars.

The other fellow is at an earlier stage in his venture. He's a cook with an interest in sailing: he's interested in catching real waves. As the article tells his story, it's a classic case: Someone with a passion sees a need and sets out to find a customer. In this case, he started small. After developing his business plan, he started walking the docks and talking to yacht owners who were interested in gourmet-level meals on board. After all, you don't have a business if you can't find customers. He's won an entrepreneur of the year award, so one might assume that he's probably doing alright on the business side, though the article didn't really say.

The two businesses are dissimilar enough (as to length of time in business, type of business, customer base and so on) that we have to exercise caution inat comparisons we make, but a few points deserve comment:

Is your choice of business model appropriate? Could the low-carb owner have foreseen the difficulties she would run into? In opening her four stores, the low-carb owner attempted to adopt the Amazon / E-Bay model: go big or go home. To do so, she had to raise a lot of money, and it only got her four stores in and around Vancouver. Yet she was up against the Save-On Foods and Safeways of the world, who already had a distribution network, established relationships with suppliers of the low-carb products, and far deeper pockets. In addition, she may have chosen a different route if she had considered the psychology of her customers and how difficult it is to change eating patterns for a sizeable portion of the population over the longer term.
Understand your business. Both businesses found customers. The trouble for the low-carb owner arose when her customers and their food passion moved and her passion didn't. She was locked into her locations, both with investment capital, and what she had spent the money on: inventory and retail premises. Retail, particularly retail food, is a tough business, requiring large capital outlays, and possessing small margins. By contrast, the sailboat gourmet is running a service business. He's selling to a long-established and easy-to-identify group of people: those who own or rent yachts and want high quality food for their voyages. Both are areas where people won't be changing their preferences any time soon: there will always be yachters, and they'll always need to eat while they're out yachting.
Specialization may not save you.Both businesses focused on a particular niche. For those of us in small business, that's a wise strategy. Yet, as the low-carb example shows, those who live by the niche can die by the niche. "Climate change" happens in the business world just as much as in the physical world. How will you adapt if the business climate favouring your niche changes? One way to protect yourself here is, when choosing your niche, pay attention to what's already being done in that area of business (or a similar area, if you're one of the rare birds actually doing something truly new). Find out how your predecessors have managed to survive; the fact of their survival itself provides valuable guidance about the strategies and practices that you will need to adopt if you are going to survive in your niche.
Go where the money is. I first learned this point from Fred Picker, the founder of Zone VI Studios, which focused on large-format photography in the Ansel Adams tradition. (Mr. Picker died in about 2000. Calumet Photographic bought his company before he died.) You'll sell more, and at higher prices, to those who can afford to pay. Fish where the fish are. That someone owns a yacht is often a good -- though not infallible! -- sign that a person can afford to pay for your services. People going on yachts are looking for a good time, a vacation, something out of the ordinary; their purse strings will be looser than usual. By contrast, many grocery shoppers are dealing with day-to-day necessities. They tend to look for bargains.
Find your customers.It's a point that bears repeating. Forget about your capital, forget about your business plan, forget about doing all those things that the business start-up books tell you are good things to do: you don't have a business until you've found your first sale, and then the next, and the next.... What I like about the yacht gourmand is that he just got out there, where his customers were and started knocking on doors. Not every business can make that model work. But for a lot of service businesses, it's a technique to remember and use.

Need to kill your corporation? Here's 4-1/2 ways.

noreply@blogger.com (Donald L. Moir) — Fri, 23 Dec 2005 19:41:00 +0000

Some years ago, Paul Simon wrote the song "50 ways to leave your lover". As in love, so in business: sometimes you have to get rid of your own corporation. It won't leave; so you have to do something to it.

I'm not talking about killing your business -- about running it into the ground, deliberately or unintentionally. There's certainly 50 ways to do that. And no doubt, there's more than 50 ways. Enron itself probably added another dozen, just by itself.

What I'm talking about in this post are the legal ways in which to put a BC company to death. Here they are:

Don't File Annual Filings or Other Documents

First, the most common way is not to file, for two years, the required "annual report" or any other document that your company should have filed. If you have a BC company and don't file an annual report within 60 days of the anniversary of incorporation, for two years running, or if your company is supposed to file another document (such as a notice of change of directors), the British Columbia Corporate Registry will strike your company from the Register of Companies.

You don't have to worry about them striking your company the day after the filing period for the second annual report expires. The dissolution process takes a few months longer than the two years from the date an annual report was last filed (or from the date of incorporation if you never filed an annual report to begin with). But you can expect to lose your company by about the 2-1/2 year mark.

The benefit of dissolving your company this way is that it's free.

Voluntary Dissolution

The second way to kill your company is to ask that it be voluntarily dissolved. The benefit of this method is that it gives you control over the date of dissolution. For example, perhaps you neeed to coincide with a financial year-end. Or perhaps you don't want to wait for the Corporate Registry to get around to dissolving the company for non-filing.

Compared to the first method, with this second method you actually have to do some work: the shareholders (or directors, if there are no shares issued) have to authorize the voluntary dissolution, and the directors have to pay off all of the creditors of the company and then distribute the net assets of the company to the shareholders. (As to the debts, it is allowed that the directors make provision for payment of the company's debts, if it's going to take awhile to pay them, or if the amount of the debt is unknown (for example, calculating what the company owes on its final income tax or GST return). If you can't find a creditor or shareholder, the company can send a suitable amount of payment to the government to be dealt with under the Unclaimed Property Act. Sometimes a court order is involved for these unlocated creditors or shareholders.

Once that preparatory work is done, a director swears an affidavit which must be filed in the records office of the company and the request for voluntary dissolution must be filed at the Corporate Registry.

Voluntary Liquidation

Where the affairs of the company are too complex for the simple voluntary dissolution procedure to work, the Business Corporations Act provides for "voluntary liquidation". This is a complicated procedure that is invoked when the shareholders pass a special resolution to undergo voluntary liquidation. A liquidator, who must meet certain qualifications, is then appointed by the shareholders. The company must pay the liquidator an amount negotiated between the company and the liquidator. The liquidator is empowered to call in the assets of the company, pay or settle all the liabilities of the company, and then distribute any net assets to the shareholders. The liquidator takes over the powers of the directors and officers of the company during the liquidation.

This method of killing your company is costly and time-consuming. You wouldn't use it unless your company was of a fairly significant size.

Court-Ordered Liquidation

Sometimes a dispute arises between shareholders or directors of a company and the only suitable resolution to that dispute is for the court to kill the corporation through court-ordered liquidation. In this method, the court appoints a liquidator (usually a bankruptcy or accounting firm) for the company. The powers and duties of the liquidator are similar to those of a liquidator in the voluntary liquidation method, but in this case, the liquidator has to report to the court during and on completion of the liquidation.

Because you're looking at litigation in this method, it is terribly expensive and time-consuming, in addition to taking place in an atmosphere of contention.

Effect of Dissolution

You can kill a company, but what does that actually mean? Here's what you need to know:

On dissolution, a company ceases to exist for all purposes. That is, the company is dead. It can't file tax returns or buy or sell anthing.
On dissolution, any undistributed assets of the company, whether land or personal property, immediately become the property of the BC government.
Dissolution does not affect any lawsuit that the company is involved in before dissolution. As long as the lawsuit started before dissolution, it can be continued against the company as if the company had not dissolved.
And, unfortunately, after dissolution, the liabilities of any director, officer, shareholder or liquidator of a company continue and can be enforced as if the company had not dissolved. This allows, for example, directors to be sued for not paying withholding taxes on employees.
Shareholders who received assets of the company can be held liable for the value of those assets at the date of receiving those assets. If a lawsuit is involved, the shareholder who received assets must be added to that lawsuit within two years of the date the company was dissolved.
The records of the dissolved company must be kept by the person in charge of the company's records office (or other specified persons) and that person may have to file a notice with the Corporate Registry.

Corporate Resurrection

If your company is dissolved in any manner, all is not lost. A dissolved company can be "restored" to the Register of Companies. I won't go through all the details here. In BC, the cost of restoration is about the same as the cost of incorporating a new company. You must apply to restore your dissolved company within 10 years of dissolution. We'll have to cover the details in another post.

I can't kill my company! Amalgamation as an Option

I mention this last method, amalgamation of two or more companies, as method 4-1/2, because this one doesn't result in the company ceasing to exist. Instead, the companies who are amalgamating will all continue to exist, but in one big "continuing corporation" or "amalgamated corporation" instead of having separate existence. Picture two streams joining to make one river.

Amalgamation of companies means that the individual pre-amalgamation companies both continue to exist, but now they're joined. The continuing company may have the same or different share structure or name of any of the pre-amalgamation companies.

Amalgamation can be fairly straightforward in simple situations, but it does require at least one other company. If you only have the one company, amalgamation won't work.

There are some other details you'll want to know about amalgamation, but I'll put them in a separate post.

Buying a Business? Ask these 3 important questions.

noreply@blogger.com (Donald L. Moir) — Thu, 22 Sep 2005 17:58:00 +0000

Thinking about buying a business? Sometimes it is better to buy an existing business, rather than to create your own. And sometimes buying a business can help in the growth of a business you've already started.

Buying a business is an undertaking that is both potentially expensive and complex. Businesses have a lot of moving parts, and there's only so much a person outside the business can know with confidence. But sellers may not be willing to fully disclose everything about their business to an uncommitted buyer.

So, if you're in the early stage of considering purchase of a business, how can you make the best use of your time? What are the most crucial pieces of information that you can get, information that the seller should be willing to give you, but without feeling like he or she is having to disclose all the secrets of the business?

Chad Simmons, in his "Business Valuation Bluebook", says there are three quick, but important questions a buyer can ask the seller:

How much is the average revenue per month?
What is the average markup on goods sold?
What are the average cash expenses, per month, excluding salary for the owner?

These questions will help you estimate the cash flow being generated by the business, which is often one of the first steps you'll take in deciding how to value the business you're thinking of buying.

Here's how the questions work:

Average monthly revenues allows you to calculate the yearly revenues. Some businesses trade on multiples of the yearly revenues (for example, the price of the business is equal to one times sales). However, there are tricks in using a price to sales multiple approach in valuing a business; be sure you know them. In general, higher price to sales multiples can be justified by higher net profit margins and/or higher growth rates. So we don't stop at revenues. We're after cash flows generated by the business, so let's press on.

Knowing average monthly revenues and the average markup allows you to calculate the cost of goods of the business: revenues / (1 + markup) = cost of goods.

For example, if average monthly revenues are $20,000 and the average markup is 40 percent, then cost of goods for the business is: $20,000 / (1 + .40) = $14,286.

You can then calculate gross profit: revenue - cost of goods = gross profit. In our example, $20,000 - $14,286 = $5,714.

With the gross profit, you can then use the average monthly expenses to calculate the business operating profit: gross profit - average monthly expenses = operating profit (before taxes and owner's salary). In our example, $5,714 - $3,000 = $2,714 per month.

Converting the monthly operating profit to a yearly figure gives 12 x $2,714 = $32,568.

You can then use these results to calculate any number of ratios that you want: gross margin, operating margin, and so on.

Remember that this amount is before owner's salary and income tax. Under our example, if the owner has to work full time in the business, the business is generating only enough to pay for a modest wage for the owner's work as an employee, which means little return on the owner's investment in the business as owner.

Simmons goes into much more detail on how to value a business. The book is a worthwhile for both buyers and sellers.

INC Business Lawyers has acted for buyers and sellers of many different kinds of businesses. If you're considering the sale or purchase of a business, or part of a business, please call or e-mail us.

Why "good standing" is important for your BC company or society

noreply@blogger.com (Donald L. Moir) — Fri, 17 Jun 2005 16:57:00 +0000

With the real estate market being so hot these days in many parts of British Columbia, it's become more important than ever to understand why it's important to keep your British Columbia company in good standing. If you used your company to buy land, you can lose that land to the government if you don't keep up with your company's annual filings. The same considerations apply to societies that are incorporated in British Columbia -- all those charitable groups, religious and community organizations, and so on.

What does "good standing" mean?

Every British Columbia company is required to file a document called an "annual report" with the Corporate Registry every year. The document must be filed online. At present, the government charges a filing fee of $45 for the annual report. Some people do it themselves, and others do it through their registered office service. INC Business Lawyers provides registered office services to keep these filings and their supporting documents, the annual shareholder and director resolutions, up to date. (A similar requirement exists for societies, though there are differences in the details.)

As with most kinds of government filings, there are deadlines attached. Annual reports must be filed within 60 days of the company's date of incorporation in British Columbia. It is possible to file reports later than that, almost always without penalty. Technically speaking, not filing the annual report on time is an offence and could be penalized, but there are huge numbers of companies that don't file the report on time, and the sky doesn't fall.

Because there's no penalty for late filings, many people delay filing their annual reports, just to defer an unwelcome expense for a year or so. The trouble arises when your BC company falls two years behind in its filings. When that happens, the Corporate Registry eventually starts a process that will result in the company ceasing to exist if the annual report filings are not brought back up to date. Fortunately, the Corporate Registry allows several months of grace after the two year anniversary before they'll start this dissolution process, so many people can save their companies at that point.

But some companies aren't saved. Sometimes that's intentional, but other times it's inadvertant. Perhaps the company moved from its registered office location and didn't bother updating that information with the Corporate Registry (through filing a notice of change of offices, which costs about $22 to file). Or the annual report reminder document got buried on someone's desk.

A company or society that gets struck from the BC register of companies is dead. It no longer exists, though it can be restored. Many people learn their company was struck when they go to file their corporate income tax returns and those returns get bounced by Canada Revenue Agency because the company has been struck.

Losing Land by Escheat

BC companies or societies that have been dissolved can be restored for a period of 10 years after the date of dissolution. But, for the purpose of this article, the important thing to note is that at the date of dissolution all of the assets of the company, whether personal property or real property (land), pass to the British Columbia government. The technical word for this passing is "escheat" (and you may think it's cheating for the law to be written that way, but it is something every company owner should be aware of).

We'll focus on land in this article. If you can get your company restored within two years from the date of dissolution, then there's no problem. Section 4 of the Escheats Act provides automatically that land owned by the company at dissolution will be automatically restored to any company that's revived within two years from dissolution. The Escheats Act also says that the government can't deal with the property for that first two years.

However, where more than two years have passed, then the procedure to restore your company (or society) will be more involved. At this point, the Escheats Act gives you two choices:

If you're still within the 10 year window for restoration, most BC companies will be able, and want, to follow this first option. In general, the procedure here is to serve the government with legal notice of the court application to revive the company and then go to court to have the application dealt with. The Escheats Act empowers the court to make an order that restores the land to the company or society. The Act does, however, require the court to include in that order any costs that the government was put to by reason of the escheat of land. To restore a society, you'll be going to court anyway, so this extra part of the order doesn't mean a great deal of extra work. For BC companies, though, there would be some extra work, because under the new Business Corporations Act most restorations can be done without a court order.

The second procedure available under the Escheats Act to obtain escheated land back from the government is to apply directly to the Cabinet of the provincial government. In order to do this, you'll need to follow the procedure and provide the information that the Escheats Office requires. They're located in Victoria, and will readily provide a memo setting out what is needed. In general terms, your corporation will need to be able to provide clear evidence that it actually owned the land, supported by affidavits from directors of the company. This procedure typically takes longer than the first procedure. It can be used within the 10 year window for revival of a BC corporation, instead of the first procedure, but it's main benefit is that it can also be used after the 10 year window has closed, when it will be impossible to revive the corporation.

INC Business Lawyers has processed many restoration applications. And, sad to say, we're getting experience now in the Escheats Act when it comes to recovering land for a dissolved BC corporation or BC society. If your company or society has fallen into this kind of trouble, please drop us an e-mail or give us a phone call, and we'd be pleased to help you out.

Incorporation basics (2) - Choose a name - legal considerations

noreply@blogger.com (Donald L. Moir) — Mon, 06 Jun 2005 21:09:00 +0000

Last week, we looked at marketing considerations in choosing a name for your new corporation. We also discussed ideas for choosing a name for your company. This week, we'll look at the legal considerations in choosing a corporate name for your British Columbia corporation.

(Before going further, a word of caution: we can't cover all, or even most, of the various legal considerations that might arise in choosing a corporate name. We'll try to hit the highlights. For any questions that arise, you should obtain legal advice for your particular situation. These blogs are not to be construed as specific legal advice.)

What's allowable and not in a corporate name will depend, ultimately, on the jurisdiction in which you incorporate. Most jurisdictions have developed name policies that guide whether your proposed name will be acceptable. Some of these are available online, and other's aren't. For example, the federal government name policies are easily found at www.strategis.gc.ca. For starters, you can read the brochure. For more detailed information, read the compendium and guidelines. In British Columbia, the corporate name guidelines are similar, but don't seem to be accessible online.

The first task in choosing a corporate name is not to take someone else's corporate name or trade-mark. To do so would expose you to a claim for trade-mark infringement or "passing off". This is a whole topic in itself, but in general, remember these points:

Don't fixate the first name that pops into your head. If you thought of it now, someone else might already have it.

Do some searching. How much to search is up to you. Free searches include looking up names in telephone books, both in print and online, doing domain name searches, and using various internet search engines. The Strategis website mentioned above gives free access to the Canadian trade-marks database, where you can do simple searches to make sure you're not unknowingly taking someone else's mark. You can also do more formal paid-for searches. We can supply those searches to you. They cover all business names and even trade-marks registered in Canada, or broader. The cost for this kind of search starts at about $25, if the search is ordered along with our standard incorporation package. Searches can be as broad as you like, but the broader they are, the costlier. At the upper end, a full search of US and Canadian names and trade-marks can run several hundred dollars. Most people won't need that level of searching, but if you're starting a business that will work down into the United States, it may be worthwhile.

Second, here in BC, your corporate name must use a three-element format; for example, "Smith's Dogwalking Inc." A two-element format (such as Microsoft Corporation) isn't allowed until you have trade-marked the distinctive first element in your name.

The three required elements are:

Distinctive element: This is typically the first element in the name and serves to make your name distinct from those of others. In the example, "Smith's" is the distinctive element.

Descriptive element: This middle element is meant to give the people who deal with your corporation some idea of what the corporation does. The idea can be as general (such as "products", "holdings", "enterprises") or as narrow (such as "blue-eyed dogwalking") as you wish. And note that you're not restricted to the business suggested by the descriptive element. If "Dogwalking" is your descriptive element, you can operate all kinds of businesses, whether related to dogs or not. (You might confuse your customers, but that's a different issue.)

Incorporation Suffix: All corporate names must end with a word or abbreviation to show that they are limited liability entities. In BC, the allowable choices are "Incorporated" or "Inc.", "Limited" or "Ltd.", and "Corporation" or "Corp." The suffixes all mean the same thing, so choose the one you want based on marketing considerations. For example, if you're dealing into the United States, choose "Inc." or "Corp." (or those words spelled out in full), as those are the usual incorporation suffixes used in the United States. By contrast, those dealing into Hong Kong or into Great Britain may want to use "Ltd."

Given the wide variety of possible names, it's not possible to list all of the do's and don'ts of creating a name that will be acceptable in the Corporate Registry here in BC. If you stick to my Smith's Dogwalking Ltd. example as a model, you won't go far wrong.

If you'll be selling outside of British Columbia, you can incorporate your corporate name in English and add as many foreign language translations of the name as you like.

Here are some more examples of what not to do in creating your corporate name:

Your name can't connote a connection with royalty or any government. So "Smith's Royally Approved Dogwalking Services Ltd." won't fly.

Similarly, you can't use the name of another Canadian province in your company's name, unless you're incorporating in that province. "Smith's Dogwalking Nova Scotia Ltd." is out, if you're incorporating in BC.

Not all descriptive elements are allowed. This applies mostly in industries where special legislation or regulatory permission is needed in order to carry on business, such as most professions (engineering, law, medicine, dentistry, accounting, veterinarian) and certain regulated industries such as banking, insurance and railways.

It should go without saying, but do note that names with a pornographic or racist or other -ist bent won't be accepted. This is usually not a problem.

A lot of people, probably having seen names that are allowed in other jurisdictions, like to suggest using a word such as "Group" or "National" or "International" as the sole descriptive (middle) element; for example, "Smith's Group Ltd." Sorry, it's just not allowed here in BC, so please don't offer it as a suggestion to begin with. Using those words with another word in the middle element is fine: "Smith's Dogwalking Group Ltd."

If you'd like to use "Canada" or "British Columbia" in the name, that's ok, but there's a funny rule regarding the use of round brackets ( ) to surround those words: you can only use the round brackets if you've already got a corporation with a similar name and the new corporation will be part of that group; otherwise, you can't use the round brackets. So, if I've already incorporated Smith's Dogwalking Ltd. in Alberta, then I can get "Smith's Dogwalking (BC) Ltd." through. But if my BC corporation is the only corporation I've got, then I'd have to settle for "Smith's Dogwalking BC Ltd.". (I don't make the rules; I'm just telling you what they are.)

If you want a name that begins with initials, be aware that, at this point, almost all two initial names (eg, "AB Dogwalking Ltd.") are taken, at least for more common descriptive elements (like "products", "enterprises", "services", and so on). If you're bound and determined to use only two initials to start the name, we'll look it up for you, but make sure you give us an unusual descriptive element. And you may be far better advised to spend your time using a third and even fourth initial. This problem will only get worse as time goes on.

Similarly, some distinctive elements are extraordinarily common, depending where you live in the province, so you'd be better off making a different choice right from the start. Examples include "Creative", "Pacific" (where you live in or near Vancouver), "Coast Mountain", and similar ideas.

Be aware that certain descriptive (middle) element words are treated as being interchangeable by the BC Corporate Registry. For example, if "Smith's Capital Inc." exists, you won't be able to incorporate "Smith's Finance Ltd." Similar ideas play out in the construction field and other fields, too. Again, with our standard incorporation package, we do a pre-screen of names to alert you to this sort of conflict.

The BC Corporate Registry name approval process allows you to submit up to three choices at once. We recommend that you provide us with all three choices. You'll be approved for the first available name; they don't examine all names. In providing the three choices, be aware that merely changing the incorporation suffix doesn't create a sufficiently different choice. Similarly, minor changes of spelling won't help, either: "Smith's Dogwalking Ltd." isn't any different than "Smythe's Dogwalking Corp." The names are tested both on look and sound; a similarity with an existing name on either ground will usually mean rejection of the proposed name. Similarly, merely adding a "dot com" (".com"; or some such variation) won't make a difference between two choices. The point here is that we encourage making your three choices truly different from each other. If you like your distinctive element, then choose a really different descriptive element, and vice versa.

Company names are important, as they can be a major part of setting the tone and public identity of your business. And they're one of the first decisions you'll need to make in setting up your new business. We're ready to help you through this aspect of the incorporation process, so please call or e-mail us when you're ready to incorporate.

Incorporation basics (1) - Choose a name - marketing considerations

noreply@blogger.com (Donald L. Moir) — Tue, 31 May 2005 00:36:00 +0000

I thought it might be helpful to begin a series of posts on points to ponder when it comes to forming your BC corporation. (And some of the ideas will be useful when you're incorporating in Canada or elsewhere.) We've already put some information on the main part of our website (http://www.incorporate.ca), so you might want to read there, too. There will be overlap, but it's all in a good cause.

Today, we'll discuss choosing a name for your new company.

To begin with, you'll need to consider:

legal requirements, and
marketing (or aesthetic) requirements.

On the marketing side, points to consider include:

Do you want or need to obtain a domain name using some or all of the corporation's legal name? If so, you need to make sure the corporate name will be accepted in the BC Corporate Registry (or wherever you incorporate) before getting the domain name. It can be pretty embarrassing, to say the least, to crank up a domain and then find out you can't get that name in the Corporate Registry. Choosing an adequate domain name is a whole essay in itself. Issues of availability, memorability, and easy searchability come into play.

Do you want or need to trade-mark the name? In Canada, trade-marks are obtained under the Trade-marks Act, which gives protection all across Canada. (As compared to the United States, where you have a choice of filing for a trade-mark in one or more states or federally.) If so, you'll probably want to undertake a proper trade-mark search before filing for the corporate name. We can help with this kind of search. Donald L. Moir is a registered trade-mark agent with the Canadian Intellectual Property Office.

What is your branding / corporate identity strategy? Is your corporate name going to be identified with the products or services that you are selling (examples: McDonalds; Starbucks). Or do you want your products to be identified separately from your corporate name (example: Johnson & Johnson sells many different products under their own brand names; Procter & Gamble is another). Or will you have a mix (example: Microsoft names most of its products with their own names, but usually uses "Microsoft" with them: Microsoft Word, Microsoft Excel, and so on).

Are you going to go with a strong name, a generic (weak) name, or something in between? In general, made-up names, such as Kodak or Xerox are unusual and strong. Generic names describe what it is you're selling: for example, "General Shoes Limited". While an in between name takes an everyday word but applies it to a non-obvious subject matter, like "Apple Computers" or "Amazon" for books and, now, many other items.

What do you want your corporate name to communicate to the people interested in your business (family, suppliers, customers, employees, lenders, shareholders)? For example, Thomas Watson Sr. chose "International Business Machines" as a name before they had any international customers. He knew where he wanted to go, though, and indicated it right from the start.

You can hire companies to create names for you. Some charge many thousands of dollars for that kind of service.

For those on more limited budgets, I'd suggest pulling out a dictionary and thesaurus and flipping around at random. Let your mind go. Do free association. Using the speller or thesaurus function on your word processor is another to generate words that might not come to mind otherwise. Make a list of your choices and then narrow it down. Get input from family, friends or business partners.

Some people turn to foreign languages for inspiration. That's fine. Just be sure you understand what the word means in the foreign language, whether or not you'll be selling outside Canada.

There's even software that can help. Just Google under "company name generator" or "business name generator" or similar phrases.

It's hard to get a decent name these days, as there are already so many corporations on the list of companies. The obvious choices are probably already taken. For example, using "Creative" in your company name isn't. There are tons of "Creative" companies already out there. Same thing for local names. Here in the Vancouver area, "Coast Mountain" is used by many, many companies. You'll improve your chances of success in registering your name if you steer clear of easy, obvious choices.

I've only scratched the surface of marketing considerations in choosing your corporate name. Next, we'll look at legal considerations for your BC company.

Chores For After Incorporation

noreply@blogger.com (Donald L. Moir) — Tue, 07 Dec 2004 18:43:00 +0000

What's there to do after you get your shiny, new corporation back from the lawyers? In Canada, plenty. And I'm not talking about the obvious, pleasurable activities of running your business and making money. No, my friend, I'm talking about red tape -- government regulation. It's not going away, so you may as well get used to it and deal with it up front. That way, you'll avoid a lot of grief.

Here's a brief overview aimed at the general business. Some of you may be involved in particular industries where you'll have to obtain specific registration under one or more pieces of legislation. The specifics vary by province and by industry. Common examples include car dealers, people in the financial business (stock brokers, mortgage brokers, mutual fund or insurance sellers), and professionals (such as doctors, dentists, accountants and lawyers), liquor licensing, and so on.

Here's a list of post-incorporation chores that most of you will need to attend to:

Open your bank account: A pretty obvious chore. Your banker will require the certificate of incorporation, notice of articles, and the full set of articles for your company. These documents are found (or should be found) in your corporate records book (usually a three-ring binder with tabs to separate the different kinds of corporate documents you'll collect over time). The bank will take copies for their files. The bank will also present you with at least an account operation agreement and a signing authority directors' resolution. You'll need to sign those. Make sure you keep copies for your records.

The account operation agreement is straightforward: it's the deal between your company and the bank for running the corporate account. The resolution is the document that sets the authorizations for the people who will be able to make deposits to the account and sign cheques to withdraw money from the account. In naming those people, you have a choice: you can name the people by individual name (eg, Sally Smith) or by office in the company (eg, any two of the president, the vice president, and the treasurer; or any two directors). We recommend that you identify the signing officers by title and not by individual name. In theory, this way makes it slightly easier to deal with changes to the signing officers. In practice, you may find that a disgruntled signing officer may have the ability to shut down operation of the company bank account if that person complains to the bank. The lesson? Choose your signing officers carefully.

Register for workers' compensation: In British Columbia, registering for workers' compensation is mandatory for almost all occupations and industries. Look in the business listings of your local telephone book under "Workers' Compensation" for the phone number. In the Vancouver area, the local number for WCB employer services is 604 244-6181. You need to register even if you're a one person operation. You can also register online through their website at http://www.worksafebc.com/ or use the "One Stop" service mentioned below.

Get a municipal business licence: Most cities and towns in British Columbia require businesses that have an office in that place to obtain a local business licence. It's nothing more than a tax grab, we agree. But people who care about fully complying with the red tape will want to obtain one. The trick in dealing with your local city hall is to find the correct department. With business licences, it's usually called something like "licenses and permits". You can call or go online or drop by in person to city hall to get your business licence. Or, if you use the "One Stop" service discussed below, you can apply for your business licence along with various tax numbers.

Get tax registrations: In Canada, this means applying for the federal "business number", and the various federal program subaccounts (corporate income tax, payroll registration, import/export, and GST being the main ones) and, as applicable, provincial sales tax or other provincial tax (eg, hotel room tax). The business number is a 9 digit number (eg, 983592352) that identifies your business for federal programs. Then, for each "program" (ie, tax account), you open a 6 digit subaccount: for GST, it's RT0001, for your first subaccount, and RT0002 for a second one; for payroll, it's RP0001; and so on.

You can sign up for these tax accounts the hard way, by applying individually to each government department. But why would you? Over the last few years, both the federal and provincial governments have made signing up for these tax account numbers much easier, by offering a couple of online registration facilities.

The two that we're aware of are: the One Stop website (www.onestopbc.ca or www.bcbusinessregistry.ca); and the federal government's own website found through the Canada Revenue Agency website: http://www.cra-arc.gc.ca/tax/business/menu-e.html (and find the link that says "Business account registration"). We mention this broader link because of the useful information it contains about various tax matters that business owners need to be aware of.

We've used the One Stop website. It can be confusing. And the process can take a long time to get through: up to an hour, we've heard. But if you persevere, it should allow you to register for the main federal tax accounts, the BC provincial sales tax, WCB, and your BC municipal business licence all in one go.

We haven't had to use the federal website. It seems simpler, but it only covers the federal tax account registration and the some provincial sales tax registrations (BC is one of the jurisdictions using the site).

Both websites contain a welcome variety of links that discuss why you need to obtain a business number and what you need to know about using your business number and its various subaccount numbers and other information that relates generally to running a business in Canada.

And for people incorporating a BC company, be aware that from November 29, 2004, the BC Corporate Registry will automatically request and obtain a business number when your corporation is filed. This link from the BC Corporate Registry gives the details: http://www.fin.gov.bc.ca/registries/corppg/cobn.htm

Essentially, this new procedure means that BC is adopting the federal 9 digit business number as the identifier for each corporation. And when the corporation signs up for a BC tax account (such as PST), that account will now be a 6 digit subaccount under the business number (eg, 989343232 BC0001 indicates a BC company; 989343232 BT0001 will indicate the first PST account.)

The business owner will still need to register for WCB and the other federal tax accounts, using one of the methods outlined in this article.

Red tape. Not something as business owners we can love or leave. But at least the Internet makes some of it easier to manage.

Society Act (BC) Changes

noreply@blogger.com (Donald L. Moir) — Tue, 16 Nov 2004 22:53:00 +0000

Effective November 1, 2004, a number of changes have been made to the Society Act (BC). The changes are aimed at reducing the paperwork burden at the Corporate Registry.

Some of the changes include:

1. No more vetting of the society's bylaws by the Corporate Registry when incorporating a society or making changes to the bylaws. The Registry now acts only as the public repository for the bylaws (that is, you still have to file them, but they won't look at them). So if you're incorporating a society, or making changes to the bylaws of an existing society, you'll want to be sure to have a lawyer review the bylaws to make sure they comply with the requirements of the Society Act. We have incorporated a number of BC societies in different areas of endeavour, and would be pleased to hear from you if you need help with your society.

2. No more need to file financial statements with the Corporate Registry after the annual general meetings.

3. No more need to obtain the consent of the Minister of Finance when incorporating a society as a "social club".

4. No more need to get an order from the Registrar for permission to give notice to members of the society or for voting methods at meetings of members. Instead, it's up to the society to follow whatever method of notice or voting is contained in the society bylaws.

In 2005, the Corporate Registry will implement an online filing system for annual reports of societies.

Here's a link from the government describing the changes, and providing links to an updated copy of the Society Act itself: http://www.fin.gov.bc.ca/registries/corppg/socchg.htm

Handbook to help launch your business

noreply@blogger.com (Donald L. Moir) — Wed, 06 Oct 2004 00:23:00 +0000

For all the ragging we do about governments in Canada, we have to admit that they do have their place. On the whole, the BC government and parts of the federal government have done an excellent job in putting useful business resources onto the Internet.

One of the main federal gateway websites is Strategis: www.strategis.gc.ca. Another is the Western Economic Diversification Canada (WEDC) website: www.wd.gc.ca/default_e.asp.

There's a lot to criticize about WEDC: government shouldn't be in the business of trying to pick winners; government shouldn't take tax dollars from waitresses to spend on experimental businesses; and so on.

But in this case WEDC has prepared something useful: a guide that gathers into one resource information on launching your own business, called Starting your business: A Guide to Resources for B.C. Women. You can find the Guide through the Women's Enterprise Society website: www.wes.bc.ca. It's free and can be viewed and downloaded in PDF.

I guess it's easier to get government funding if you cast your project as being aimed at women entrepreneurs rather than enterpreneurs generally or even -- gasp! -- for men alone. But we'll admit that, if the stereotypical view of men, directions and roadmaps has any truth to it, it's more likely that women will actually read the thing.

If you're a woman, of course, you'll feel at home with the guide. But men shouldn't be shy about looking at it, either. Anyone, male or female, who starts a business needs whatever help they can find. The guide is 26 pages long. It is aimed at new entrepreneurs, those people setting up in business for the first time. But with the variety of checklists, points to consider, lists of resources, publications and government agencies, more experienced entrepreneurs will find the guide worthwhile.

We commend the guide to you in the start-up phase. And when you're ready to incorporate, register your business name, or do some other legal transaction, please give us a call.