Should I incorporate my business?

Is incorporation right move?

Photo: Pixabay

Kelowna is a city bustling with entrepreneurship and business.

As a corporate lawyer, I am regularly approached by clients wanting to learn information to determine whether they should operate as a sole proprietor or as a corporation.

I dealt with a client last week who runs a landscaping company. He has three trucks, various pieces of equipment and three employees. He operates as a sole proprietor and was curious to learn whether incorporation would be beneficial for his business.

One of the first topics I discuss when looking at incorporating is liability. When I spoke to him, I told him that by operating his business personally, as a sole proprietor, he is personally transacting with the customer. That means if something goes wrong with the business, say a mistake on a job, he would be personally liable.

The risk of operating as a sole proprietorship is a disgruntled customer could sue him personally. From a liability perspective, that is not good. It means his personal assets could be at risk, including his family home and vehicles.

By incorporating a company, he would create a separate legal entity that would transact with customers. That is known as the “corporate veil.” The corporate veil provides a layer of protection for business owners because if something goes wrong, with limited exceptions, the company is liable and not the individuals behind the company.

In my client’s case, if his company was sued and lost, the company would be liable but his personal home, vehicles and other assets would be safe from creditors.

Business owners who decide to incorporate also need to make sure it is clear to customers they are dealing with a corporation and not the individual personally. As a result, in my client’s case, he would need to update his business cards, website and any other business documents to ensure the company is listed and not him personally.

The second reason to incorporate is to keep more money in your jeans at the end of the year. To determine whether that is the case in your specific circumstance, you need to speak to your accountant. The question is, “Am I paying less tax if I am incorporated?”

One way corporations can help reduce tax is through a tax-efficient share structure. For example, my client could include his wife or kids as shareholders so they could split income to reduce the overall tax burden.

Another way corporations help reduce overall tax burdens is when the owners make more money than their expenses, they can leave funds in the corporation. Funds remaining within the corporation are taxed more efficiently and can be used for investment purposes going forward, for example, buying a rental property.

If you have any questions, please feel free to reach out to the writer at 778-478-8555 or by email at [email protected].

The information provided in this article does not, and is not intended to, constitute legal advice. All information and content are for general information purposes only.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

How to protect your loved ones when you die

Complete estate plan: Part 2

Photo: Contributed

In my previous article, I discussed wills, which are the first document in a complete estate plan.

Contrary to popular belief, a will does not provide any legal authority to handle your affairs while you are alive. So, to provide authority for individuals to manage your affairs while you are still alive, two other documents are needed for a complete estate plan. These documents are the power of attorney and the representation agreement.

The power of attorney, often called a POA, grants an individual or individuals authority over your financial affairs. Unlike a will, which only applies if you are dead, a POA applies while you are alive. It also applies if you are not incapacitated, unless you specify otherwise.

We typically advise clients to not restrict a POA to incapacity, as it adds a layer of complexity for the individual named on the POA. POA’s can be abused, so it is important to choose individuals you trust, and if there are multiple individuals, you need to consider whether they can work well together.

The POA is important because your loved ones, including your spouse and children, have no authority over your financial affairs without it. For example, they would be unable to sell your home to assist with the costs of care, or to access your bank accounts or investments that are held solely in your name.

The representation agreement grants an individual or individuals authority over decisions relating to your health and well being. Like a POA, it only applies while you are alive and may apply if you are not incapacitated. The authority under a representation agreement is comprehensive and can include health decisions, well-being decisions and authority to access records. It also includes an end-of-life provision, which prevents medical professionals from administering heroic measures in the event there is limited or no prospect of recovery. Representation agreements also allow doctors to remove you from life-support if you have a limited, or no, prospect of recovery. Otherwise, they must keep you alive in a vegetative state.

Preparing the power of attorney and representation agreements in a timely manner is important. If you put off preparing these documents and lose capacity, they can no longer be prepared as you must have capacity to sign these documents.

I have dealt with many cases where individuals did not prepare these documents prior to losing capacity, and then tragedy struck, such as car accident, stroke or dementia. In those cases, the family was left scrambling to figure out how to deal with their loved one’s finances, health decisions and bills. The solution at that point is a very time-consuming and costly petition to the court known as “committeeship.”

If you have any questions, please feel free to reach out to me at 778-478-8555 or by email at [email protected]. You can also view my firm's website and profile here.

The information provided in this article does not, and is not intended to, constitute legal advice. All information and content is for general information purposes only.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

How to protect your loved ones when you die

Wills offer peace of mind

Photo: Contributed

Estate planning is a topic most people dread because they are forced to confront uncomfortable issues such as death, and its consequences. As a result, many people put off completing their estate plan and the issue nags at them for some time. Unfortunately, if you fail to prepare your estate plan it can cause considerable problems for your surviving family members. It can also prevent your estate from being distributed as per your wishes.

Estate planning is among my favourite areas of practice because I deliver peace of mind. My clients have reported feeling peace of mind that their spouse and children will inherit as per their wishes, rather than according to statutory law, eace of mind knowing their families will be able to care for them if they are incapacitated and no longer capable of managing their own affairs and peace of mind knowing young children will be looked after if their parents pass away.

A complete estate plan includes a will, power of attorney, and a representation agreement.

This article will focus on a discussion of the will. A will is a legal document that only becomes effective upon your death. It establishes some of the following:

Who will be the executor—An executor is an individual of your choosing who will carry out the wishes laid out in your will. Executors are bound to carry out the will as written. Choosing the right individual is important as there have been cases where executors attempt to deviate from what is written, it can cause problems for surviving loved ones.

Distribution of Assets—This may seem simple, but asset organization is critical to minimize the amount of probate tax paid by the estate. My clients and I have in-depth discussions about the organization of their assets to minimize probate tax. Many of our clients also have blended families and may require some additional assistance in this area.

Guardianship of minor children—The will is a vehicle which allows you to appoint an individual or individuals who will care for their children in the event they die. If this is not specified in your will, the public guardian and trustee will get involved with respect to placement of the minor children.

Final wishes—The will also describes the manner in which you will be laid to rest, whether it be by burial or cremation. The will may also specify the circumstances for any funeral or wake. The will may also specify whether you wish that your body be used for scientific purposes prior to being laid to rest.

While many wills are simple, they can become more complex. For example, if you hold shares in a private company, and want to avoid probate and probate tax for your loved ones on those shares, you should have two wills, One for your shares and for everything else.

People often ask me if they should do it themselves when it comes to writing a will. In my mind, individuals spend their entire lives building their wealth, as such, they should hire a professional to ensure that wealth is passed to their family members without issue. In my experience, online wills or “do-it-yourself” wills tend to cause confusion and have even on occasion been rejected by the courts.

If you have any questions, feel free to reach out to me at 778-478-8555 or by email at we[email protected]. You can also view my firm’s website and profile here.

The information provided in this article does not, and is not intended to, constitute legal advice. All information and content are for general information purposes only.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

The three important documents in any estate plan

Estate planning essentials

Photo: Contributed

Introducing a new legal bi-weekly column by Wes Forgione, a lawyer and partner at Montgomery Miles and Stone, a law firm in Kelowna. His column will focus on his areas of practice, including estate planning, real estate, and corporate and commercial law.

Most people put estate planning off for extended periods because they think it’s going to be a head-ache, but this unresolved issue nags at them from time to time.

Clients advise me it nags at them while they are driving, while they are in the shower or while performing various errands during the day. People often report they are concerned their surviving family will be left with a mess, or not inherit as they would wish.

Estate planning is among my favourite areas of practice because I deliver peace of mind. I end the mental nagging. Some examples my clients report include:

1) Peace of mind spouses and kids will inherit as they would wish, rather than according to statutory law

2) Peace of mind their families will be able to care for them if they are incapacitated

3) Peace of mind young children will have guardians if their parents pass away

The first document in a complete estate plan is a will. A will is a legal document that is effective on death, and which allows you to name an executor, describe how you want your estate distributed and deals with ancillary issues such as guardianship for children and whether you want to be buried or cremated.

If you own a company and want to avoid probate and probate tax for your loved ones, you should have two wills, one for your shares and one for everything else. People often ask me if they should “do it themselves.” I invariably advise that they can through online websites, but I can’t guarantee the will will be valid when they die, or that it won’t cause problems when their lawyer attempts to obtain probate.

In my mind, individuals spend their entire lives building their wealth. As such, they should hire a professional to ensure that wealth is passed to their families without issue and as they wish

The second document in a complete estate plan is a power of attorney, which grants individual(s) authority over an adult’s financial affairs. Unlike a will, which only applies if you are dead, a power attorney applies while you are alive but may be incapacitated.

For example, if you were incapacitated, your spouse would have no authority to sell your home to put you into care or to access your bank accounts or investments unless they are held jointly. Once an individual is incapacitated, that person can no longer complete these documents, so it’s important not to put it off.

I have dealt with many problems where people waited and something happened, such as car accident, stroke or dementia, and the family was left scrambling to figure out how to deal with their loved one’s assets or pay bills.

The third document in a complete estate plan is a representation agreement, which grants individual(s) authority over an adult’s health decisions. Similar to a power of attorney, it only applies while you are alive and incapacitated. This document also contains a so-called “pull-the-plug provision,” which allows doctor’s to remove you from life support if you have no prospect of recovery. Otherwise, they must keep you alive in a vegetative state.

If you have any questions, please feel free to reach out to me at 250-980-3360, ext 398 or by email at [email protected].

The information provided in this article does not, and is not intended to, constitute legal advice; all information and content are for general information purposes only.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.