One of the critical phases in the lifetime of any business will occur during the transition between a privately-owned company and an incorporated enterprise. However, this step is also quite necessary, for a smooth transition will equate to increased exposure, more access to funds that the possibility of exponential growth. So, let us look at a few key areas that need to be addressed when enacting this changeover.
Avoiding Common Mistakes
Performing the change to becoming incorporated is frequently undertaken by business owners themselves, for it will save them money as opposed to hiring a third-party adviser. Unfortunately, this will also allow several common mistakes to be made along the way. For instance, an owner may fail to issue shareholders individual shares in the company; resulting in the inability to pay dividends at regular intervals. This and other areas are frequently overlooked. So, it is always a good idea to seek a business lawyer to make certain that all bases are covered.
The Choice of Shareholders
Many owners may hesitate when choosing which individuals represent the best shareholders; commonly wondering as if family members are a wise option. In fact, it is an excellent idea to include family, as there are a number of tax benefits from such a relationship. Still, there are other tax rules that are rather intricate in regards to deciding upon a shareholder and the allocation of shares. It is wise to seek advice from a trained professional to eliminate any mistakes well ahead of time.
Eliminating Preexisting Business Identification Numbers
After the incorporation process is complete, it will be necessary to file a form known as an RC145 with the Canada Revenue Agency (CRA). This will enable the business owner to delete his or her business number as well as the associated GST/HST and payroll data. This is essential, for a different business number will be assigned for the newly incorporated enterprise. Should this number not be changed, the CRA will continue to contact the business via the older number. This can cause problems should communications need to be established or if there is a subsequent problem with a filing.
Both tangible and intangible assets will need to be reallocated to the corporation. Tangible assets can include equipment, vehicles and property. Intangible assets are often defined by the term “goodwill”. In essence,goodwill assets are those characteristics of an enterprise that serve to identify its key metrics (branding, customer recognition, patents). The issue with intangible assets is that their fair market value needs to be maintained during the transfer process. It is therefore important to seek the council of a trained accountant to guarantee that all asset transfers are performed properly.
These are but a handful of some of the most important areas that need to be addressed when making the transition from a private company to a corporation. It is always best to seek the advice of a professional accountant to resolve these and any other issues.