Unless you are a lawyer yourself and understand corporate law, then yes, you need a corporate lawyer. A main advantage to incorporating your business is the corporate structure. You need someone who understands how this works. While there are many legal documents you can file yourself, incorporation documents should be handled properly by a lawyer.
What does a corporate lawyer do?
When we say you need a corporate lawyer, we don’t mean you need a lawyer on staff. While that may be the best option for some companies, most businesses only need a lawyer periodically.
One of the first things a lawyer will advise you on when incorporating your business is how to structure the shares of your company. Shares in a private company, one that isn’t publicly traded on the stock exchange, usually cost anywhere from ten cents to one dollar. When you purchase a share in the company a share certificate is issued in your name, indicating you are a registered owner.
In addition to setting up the share structure in your company, a corporate lawyer will keep your records book at their office. A corporate record book includes an incorporation certificate, share certificates, a share register, resolutions from directors’ and or shareholders’ meetings, confirmation of annual report filings, and other corporate documents as required.
You must file an annual report with your provincial corporate registry office when your business is incorporated. Your lawyer can handle this for you as well. Lawyers work closely with accountants to make sure your company is onboard with corporate tax law. This will help you save as much tax as possible.
How can corporate structure save tax?
Company shares can be common or preferred with voting or non-voting rights. Shares have classes such as A, B, or C, etc. Each share type has different rights and restrictions. Being able to give different classes of shares different rights and restrictions is one of the main advantages to incorporating a business.
The type of share you own determines if you are eligible to receive dividends. As an owner of shares in your company, if you own different shares from other owners, you have the ability to pay yourself dividends without paying the other owners. This works in reverse as well. If you have income from other sources, you may want to pay other shareholders dividends, but not yourself.
When your business is incorporated, you also have more options when it comes time to sell your business. You can sell the shares of your business or you can sell the assets of your business. Which is best for you will depend on a number of factors. This is an important discussion to have with your accountant. A share sale may offer significant tax savings depending on your business specifics.
Shares as an Alternative Source of Funding
When your business is incorporated a lawyer can also help you with alternative funding arrangements. If you don’t want a traditional business loan, you might consider selling shares in your business as a source of financing. This discussion should involve both your lawyer and your accountant. You want to be very careful what rights you give to anyone owning shares in your company. Professional advice is key here.
When it comes to structuring your company in the most tax efficient way possible, there is no substitute for a lawyer’s advice. As accountants, we can’t incorporate your company for you, but we know lawyer’s who can. If you need a referral, or you’d like to discuss the tax implications of incorporation, get in touch.