Every business owner wants to be successful but where do you start? Review the slides that our experts presented, covering: the steps of building your business from the ground up; advice on laying the foundation for a successful future; financing using traditional and/or non-traditional funding, & the basics of ownership structures & co-ownership. To view our video coverage of this event, open this link: http://www.welchllp.com/resource-centre/videos/events/

1. Ask the Experts – An Advice
Series for Entrepreneurs
Establishing Your Business –
Laying Your Foundation for
Success

2. AGENDA
RBC Royal Bank:
• How you can finance your business using
traditional and/or non-traditional funding
Welch LLP – Speaker: Zoran Vranjkovic,
CPA, CA
• The basis of ownership structures and the fiscal
benefits and pitfalls of sole ownership,
partnership, and incorporation

3. AGENDA
Perley-Robertson, Hill & McDougall LLP/s.r.l.
Speakers: Lorraine Mastersmith & Owen
Bourns
• Entering into a shareholders agreement:
Considerations for co-owners

4. Traditional Means of Financing
• Personal Funds From Savings
• Love Money (Friends and Family)
• Part time job/steady source of income
while the business gets going
• Outside shareholders/investors
• Suppliers

5. Traditional Means of Financing
• Banks: Term loans or Canada Small
Business Financing Loan to finance
capital/fixed assets.
• Operating loans/Overdrafts to finance
cash flow
• Corporate Visa Cards to bridge purchases
• Letters of Credit/Guarantees
• Equipment Leasing

6. Non-Traditional Means of Financing
• Equity: Angels, Venture Capital, Public
Market
• Subordinated Debt
• Mezzanine Financing
• Asset Based Lending
• Factoring

7. Non-Traditional Means of Financing
Government Programs:
• IRAP
• SR&ED
• Community Loan Funds, CYBF
• Ontario Centres of Excellence (OCE)
• Fresh Founders.com

8. Welch LLP
Chartered Professional Accountants
Establishing Your Business
Ownership Structures
Zoran Vranjkovic, CPA, CA, CFP, TEP

9. Overview
 Tax rate comparison
 Sole proprietorship
 Partnership
 Corporation

10. Tax Rate Comparison
Corporation
Active business income
< $500,000
> $500,000
Individual
15.5%
26.5%
46.41%
46.41% / 49.53%

11. Tax integration of low-rate business income
Owner's Income
Owner's Income
>$509,000
<$509,000
Small Business
Small Business
Income <$500,000
Income <$500,000
Income in corporation
$1,000
$1,000
Corporation tax
($155)
($155)
Dividend refund
n/a
n/a
Available for dividend
$845
$845
Personal tax (maximum rate)
($326)
($295)
Net after tax cash
$519
$550
Income earned directly
$1,000
$1,000
Personal tax (maximum rate)
($495)
($464)
Net after tax cash
$505
$536
Deferral of tax
$340
$309
Savings (cost)
$14
$14

12. Tax integration of high-rate business income
Owner's Income
Owner's Income
>$509,000
<$509,000
Business
Business
Income >$500,000
Income >$500,000
Income in corporation
$1,000
$1,000
Corporation tax
($265)
($265)
Dividend refund
n/a
n/a
Available for dividend
$735
$735
Personal tax (maximum rate)
($249)
($217)
Net after tax cash
$486
$518
Income earned directly
$1,000
$1,000
Personal tax (maximum rate)
($495)
($464)
Net after tax cash
$505
$536
Deferral of tax
$230
$199
Savings (cost)
($19)
($18)

13. Sole proprietorship - Benefits
 Simple
 Losses offset other sources of personal income
 Can transfer business to a corporation

14. Sole proprietorship - Disadvantages
 Potentially unlimited liability
 Limited income splitting opportunities
 Cost of transferring business to a corporation

15. Partnership - Benefits
 Limited liability for limited partners
 Losses flow to partners
 Tax-deferred dissolution available
 Proportionate small business deduction available to
corporate partners
 Can transfer to a corporation

16. Partnership - Disadvantages
 Potentially unlimited liability (except for limited
partners)
 Set-up costs
 Increased administration
 Limited income splitting opportunities
 Questionable whether estate freeze is acceptable

17. Corporation - Benefits
 Deferral of tax (“small business deduction”)
 Income splitting opportunities
 Optimizing remuneration
 Capital gains deduction
 Estate planning opportunities
 Limited liability

18. Corporation - Disadvantages
 Set-up costs
 Increased administration
 Losses trapped in corporation

19. Sample corporate structure
Principal
Family
Common
shares
Family
Trust
Common
shares
Opco
Holdco

20. Thank You

21. Shareholders’ Agreements
Considerations for Co-Owners
October 22 and 24, 2013
Lorraine Mastersmith & Owen Bourns

22. Overview
• Unique nature and purpose of a shareholders’
agreement
• Governance considerations
• Share issuances and transfers
• Funding considerations
• Key provisions
• Dispute resolution

23. Without a Shareholders’ Agreement
• Governed by Statute:
- Ontario registered company - Business
Corporations Act (Ontario) , R.S.O. 1990, c. B.16;
or
- Federally registered company - Canada Business
Corporations Act (R.S.C., 1985, c. C-44)

24. Nature of Shareholders’ Agreement
• Agreements generally deal with present events
• In contrast, Shareholders’ Agreements focus on
anticipating future circumstances and events
• No "standard form" of agreement
• Start with a term sheet – set out your concerns or
key terms in point form

25. Purpose of a Shareholders’ Agreement
• Particularly useful in closely-held corporations
• Material topics to address in agreement include:
– Dispute resolution & deadlocks
– Special minority rights
– Obligations in respect of equity and debt financing needs
of the corporation
– Describe specific obligations of shareholders
– Otherwise anticipate likely future events

26. Governance Considerations
• Dual roles of shareholders and directors common in small to
medium sized companies
• Shareholders’ agreement provides a mechanism for the
appointment of directors and officers
• Set out quorum and other requirements in respect of meetings
• Other governance clauses relating to:
-
annual budgets
financial plans
financial statements
reporting obligations
dividend and distribution policy

27. Share Issuances and Transfers
• Primary rule - no shares may be transferred without prior approval
• Permitted transferees (ie. immediate family / holding companies)
• Address:
- Pre-emptive rights
- Rights of first refusal
- Shotgun (buy/sell) or auction provision
- Piggyback/tag-along and/or drag along provisions
- Bankruptcy or Death of a shareholder
- Divestiture or Dissolution
- Share valuation mechanism
- Public offering

28. Funding Considerations
• Share subscriptions from existing shareholders or from
new shareholders
• Shareholder loans
• Third party debt financing
• Provide for circumstances where a particular
shareholder defaults in respect of its funding obligations

29. Other Key Provisions
• Non-competition and other restrictive covenants
(consider employment contract terms also)
• Requirements for shareholders to devote their full time
and attention to the business
• Consequences for breach
– Forced sale of shares
– Reduced pricing
– Redemption mechanism

30. Dispute Resolution
• Dealing with disputes between shareholders - especially
deadlock between shareholders where no majority
–
–
–
–
Court vs mediation vs arbitration
Exercise of a liquidity right (ie. shotgun or auction clause)
Mediation or arbitration
Dissolution

31. Pooling and Voting Agreements
• Two or more shareholders may enter into a limited
agreement to vote their shares in a certain way (“pooling
agreement”)
• A voting trust agreement involves a trustee being appointed
to vote specific shares owned by particular shareholders

32. Lorraine Mastersmith
1400-340 rue Albert Street
Ottawa, ON, KIR 0A5
T: 613.566.2810
F: 613.238.8775
email: lmastersmith@perlaw.ca
Owen Bourns
1400-340 rue Albert Street
Ottawa, ON, KIR 0A5
T: 613.566.2823
F: 613.238.8775
email: obourns@perlaw.ca