Operating company? Holding company? So Confusing?!?

So you are a seasoned business person and have been making sales ninja style. However what happens if you are sued? How do we eliminate the additional liability from your operations? You made a profit this year and that's awesome but how do we keep this money safe from sticky fingered Lawyers?

The short answer is incorporation of a Holding company. The idea behind such a setup is that you do all your regular operations on your current company that means all your revenues and expenses remain within OpCo however we transfer the "Net Income" or in the accounting world we call "Retained Earnings" directly as a dividend to HoldCo. Tax Free. Yes that's right.

Some associations such as Doctors, Dentists and Engineers are required to have professional corporations where only another Doctor/Dentist/Engineer can be a partner and own shares. The rules are very strict but they do allow a HoldCo to own the building and receive rental income from the OpCo for using the premises. So technically you are paying your own company rent at market price. Yes it gets confusing but it's legit. #LegitAccounting

So once the money is being held in HoldCo you are reasonably protected by any potential law suits. What do you do with the money that's in the HoldCo you ask? Well you can use it for something accountants call "Dividend Sprinkling". If you have a spouse or children the right amount of dividend can be declared to maximize the after tax income you will receive. Setting up your corporate structure is critical to the success of your company. If you plan for the future then this HoldCo can one day evolve into becoming your Estate where you can transfer the entire corporation to your Kin(s) Tax Free upon retirement or death.

The incorporation costs are relatively minor compared to the peace of mind and additional security of your investments. It can get confusing to manage a HoldCo but remember it's in your “Taxvantage” to do so!

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team

Why Do I need to get my Business Incorporated?

Well the short answer is you don’t need to but it’s in your benefit to do so. In Canada the government wants entrepreneurs to start new companies which generates new jobs and stimulates the economy. If the government stimulates the economy in a positive manner then what do you know you have the same government next election #Liberals. So the government provides tax incentives by offering a special tax deduction called the “Small business deduction”. This deduction in one word is Awesome.

Basically on your first $500,000 of income you make within your business you are going to pay a far less taxable liability compared to if you made the same income under employment taxes. On average a Corporation is taxed much lower and a good rule of thumb is 15%. A average employee would be taxed in the 35-40% bracket. Simply by incorporating and keeping the profits inside the company and only giving yourself a salary/dividend on what cash requirements you personally have will help you in your personal taxes because of the basic salary tax deduction offsetting your income. You can always implement a dividend sprinkling strategy more on this later. #WinWin

Apart from the tax savings there’s a security and peace of mind element to incorporations. In the unfortunate circumstance that you are sued under most circumstances your liability to the corporation is limited to the assets within the corporation. Since you are an employee/shareholder your personal assets are not impacted so you won’t lose your house/car.

Additionally since you have an incorporation you can take your papers to the bank and open a Business Bank account and a Business credit card. When you borrow money under your business it doesn’t show up under your personal liability which in short is a win/win situation for you. Since you legally own the name/company you can have a level of ownership and build your space in the market where no one else can do business using your name. You can now effectively start to brand and build your profile online. #Marketing101

So going back to the original question do you really need to get your business incorporated? Reading the above makes you wonder why wouldn’t you? The costs of sustaining a corporation are offset by the great savings and value of having one. #MakeItOffical

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team