Summary:
In the first episode of Financial Planning for Canadian Business Owners, Jason Pereira, award-winning financial planner, university lecturer, writer, and host of the podcast Fintech Impact, welcomes Ted Maduri, Partner at the law firm DLA Piper, to talk about how to establish a strong business structure from the start, challenges people may face along the way, and more.
Episode Highlights:
● 01:53: – From a legal standpoint, the easiest way to start a business is through a sole proprietorship or a general partnership if you have a business partner.
● 02:50: – Registering as a business allows you to have a brand and a name, allows you to enter into contracts and then sue on the basis of those contracts, and allows you to deduct business expenses.
● 03:50: – You are not locked into a business structure forever; you can begin as a sole proprietorship and become a corporation later when the time is right.
● 05:40: – In either of these options, taxes are still done individually, on the personal level.
● 06:00: – The plus to a corporation is that it exists in perpetuity and offers limited liability, so if someone sues they are suing the company, and not you as an individual.
● 07:43: – A business doesn’t have to start thinking about HSD or GSD until they are worth $30,000.
● 08:40: – As a corporation you are able to take advantage of Canada’s small business tax rates.
● 12:20: – The simplest way to tell whether it’s the right time to add complexities to your business structure is that you can afford it.
● 14:10: – It’s better to put together an abbreviated shareholder agreement that’s more like a term sheet than it is to move forward with nothing just because it’s too costly or laborious to establish one.
● 16:04: – Ted strongly advises against combining your real estate investments with your operating company because it complicates your ability to later sell your business.
● 19:02: – Ted points out that it’s often more appropriate to have separate legal entities for each of multiple locations of a business or different divisions of a business.
● 20:42: – Ted suggests a family trust so that the business owner can remain the sole trustee and then make family members beneficiaries of that trust.
● 24:55: – Another benefit to proper corporate structure planning is tax deferral.
● 26:22: – The ideal way to set up your corporate structure is to best position it for eventual sale.
● 26:40: – You have to have a corporate structure in place for 24 months before you qualify for a tax exemption.
● 30:15: – The same record-keeping and best practices that Ted recommends for the eventual successful sale of a business are also helpful for raising funding to grow your business.
● 33:16: – You should adjust your team if you outgrow it or it’s no longer a good fit.
3 Key Points
1. There are pros and cons to choosing both a sole proprietorship/general partnership or a corporation, as well as to establishing a corporation at the beginning of your business or later in its growth.
2. It’s crucial to create some form of a shareholder agreement as soon as there is more
than one shareholder in the business.
3. Ideally, establish your business structure with the long-term view of its eventual sale.
Tweetable Quotes:
● “Anytime you do have more than one shareholder, you should have a shareholder agreement... I sometimes describe it as a prenuptial agreement for business owners.” –Ted Maduri
● “I think what sometimes people forget about is once you put shares into someone’s hands, they own those shares.” –Ted Maduri
Resources Mentioned:
● Website – Jason Pereira’s Website
● Facebook – Jason Pereira’s Facebook
● LinkedIn – Jason Pereira’s LinkedIn
● DLA Piper – https://www.dlapiper.com/en/canada/people/m/maduri-ted/
● Ted Maduri’s Linkedin – https://ca.linkedin.com/in/tedmaduri
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