Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to setting up a dental, health, or legal professional corporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your professional corporation.  I should know – I’m one of them and you can contact me directly (michael@carabashlaw.com).

So you are a dentist and you want to have a professional corporation for tax purposes.  Here’s the general process:

1. Under the Regulated Health Professions Act, 1991, no corporation shall hold itself out as a health profession corporation unless it holds a valid certificate of authorization: s. 34.1(1).
2. Schedule 2 of that Act discusses Health Profession Corporations (ss. 85.8 through to 85.14).
3. Subject to the regulations made the Act and the by-laws, one or more members of the same health profession may establish a health profession corporation for the purposes of practising their health profession: s. 85.8(1).
4. The Certificates of Authorization (Ontario Regulation 39/02) are made under the Act.
5. You will need to have a corporation BEFORE you can have a health profession corporation.  In other words, a health profession corporation is simply a corporation holding a certificate of authorization. So the corporation will need to be registered under the Canada Business Corporations Act or the Ontario Business Corporations Act.  To register a corporation, you should have a lawyer prepare the articles of incorporation, the by-laws, director and shareholder resolution and meeting minutes, director and shareholder registry, etc.  A lawyer may also be needed to  create a special class of shares for certain family members (for income-splitting purposes).
6. If you would like a lawyer to fill out the Certificate of Authorization, lawyers would charge extra for their time and it would also cost $750 in fees to the Royal College of Dental Surgeons of Ontario.
7. Depending on the name you choose for your professional corporation, the normal time frame to incorporate is between 1-3 business days.  If there are issues with the name you’ve selected, it could take longer.

FYI, you might want to consider getting a memo from a lawyer on the tax advantages/potential traps of having a dental professional corporation.  There are many things that you should be aware of (e.g. income splitting, loans, attribution rules, etc.).  The way I see it, if you’re going so far as to spend $2,500 to $3,000 incorporating (which includes getting a certificate of authorization), you should spend a bit extra to find out what you can legally do with a corporation with respect to taxes.

written by admin \\ tags: articles of incorporation, business corporations act, business lawyers, canada business corporations act, dental health, health profession, health professions act, ontario business, ontario regulation, professional assistance, professional corporation, regulated health professions, regulated health professions act, shareholder resolution, valid certificate

My final blog in anticipation of being on Goldhawk Live tomorrow at 7:00 p.m. deals with the question: do I really need a lawyer?  The answer, in my humble opinion, is not so straightforward.  In some cases, a lawyer would be highly recommended (e.g. you get charged for a serious crime or sued for lots of money or child custody is at stake) whereas in other situations, the tools may be readily available to do without their services.  Let’s look at one example of incorporating which I will use to drive home the “it depends” message.

Incorporation
There are enough service providers and information out there to help you incorporate a business yourself without a lawyer.  Just do some research on articles of incorporation, by-laws, annual returns, shareholders/directors/officers, meeting minutes, corporate taxes, etc. and you too will know how to incorporate and maintain a business.  In fact, just check out this blog and you’ll find a lot of what you need to know about each of these topics.  Here is a great government website from Corporations Canada that has 60 pages worth of valuable information on how to incorporate a business federally.

But what if you need specific by-laws concerning director liability and insurance (which you can’t find in some boilerplate precedent)?  What if you need a special class of shares for a certain group of shareholders with specific rights attached?  What if you need a shareholders’ agreement with share transfer restrictions built in place?  What if you need help getting the money out of your corporation while paying the least amount of taxes?  What if you want to expand your business and are wondering which legal vehicle (e.g. division, subsidiary, franchise, etc.) is ideal? …  You see where I’m getting at?  You will undoubtedly have questions about your corporation and where it is heading and a lawyer MAY BE NEEDED to get answers to your particular situation.  In fact, if you went ahead and incorporated without consulting with a lawyer, but then need to amend your articles of incorporation after consulting with a lawyer, you will need to pay a few hundred dollars more in government fees to do so!  So you could have saved time and money by consulting with a lawyer first.

written by admin \\ tags: articles of incorporation, articles of incorporation by laws, boilerplate, corporate taxes, corporations canada, director liability, government website, how to incorporate a business, lawyer, liabilities, share transfer, shareholder, shareholders agreement, shareholdings, transfer restrictions

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to creating a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your  Ontario or Federal corporations.

As a follow up to my recent post about income-splitting shares, I neglected to mention one of the biggest benefits of using income splitting preference shares: income splitting to reduce reduce household taxes.

Take the following example.  You have a corporation.  It earns $300,000 in taxable income.  Because of the small business credit (which I will be discussing in a future blog post), the corporation only pays 16.5% tax on that amount (this rate is going down to 15.5% starting July 1, 2010).  What do you do with the after-tax dollars?  Well, you could either keep it in the company and let it accumulate or you could dividend it out.  The latter is where the income-splitting shares come into play.  You can simply give these shares to members of your family who have little or no income.  Then, when the corporation’s directors (e.g. you) declares a dividend to the shareholders of this class of shares, they will receive and have to pay tax on those dividends.  They will get the benefit of the dividend tax credit.  But the beautiful thing is that less taxes end up being paid than if someone (e.g. you) had a higher income and received the same dividends (because of how our marginal taxes work).  These shares are not susceptible to the attribution rules found in the Canada Income Tax Act.

Remember, if you need help structuring your corporation to create income-splitting preference shares, you should make a post on Dynamic Lawyers.

written by admin \\ tags: articles of incorporation, business, canada, Canada Income Tax, canadian income tax, canadian income taxation, corporation, declarations, dividend, dividend tax credit, income tax act, incorporation, lawyers, shareholder, shareholders

So what’s the difference between a shareholder, director, and officer in a limited liability corporation?  People often confuse directors and officers or believe that shareholders must also be a director and/or officer.  I’m going to spell it out here to dismiss all the confusion about these three parties by talking about their respective roles and responsibilities.

Shareholder
Shareholders own the corporation through their share ownership.  They have the right to attend and vote at meetings (assuming they have voting shares).  This often happens on an annual basis, but can happen sooner if they want to change the board of directors they elected.  Their role is that of hands-off manager: they delegate their decision-making powers to the board of directors they elect.  Shareholders aren’t totally out of the decision-making picture, however.  Shareholder must approve by-laws (i.e. power-giving documents which authorize corporate action) and vote on important matters concerning the corporation’s Articles of Incorporation (e.g. issuance of shares, new share class, restrictions on share transfers, restrictions on business, changing the corporation’s name, etc.).  But generally, shareholder do not participate int eh day-to0day operations unless they are also officers and/or directors.  However: there is no requirement that they be officers and/or directors.

Directors
Directors are elected by the shareholders.  The articles of incorporation specify the maximum and minimum number of directors there can be and the by-laws generally have provisions in place for things like director vacancies (e.g. by death, resignation, etc.).  Directors meet every so often to decide on long-term strategy and evaluate the progress of the corporation.  They themselves delegate decision-making on a daily or more routine basis to the officers of the corporation.  Directors are responsible for declaring and paying out dividends to shareholders and get involved in important corporate matters.

Officer
Officers are those individuals who manage the day to day affairs of the corporation.  They have titles like CEO, President, Treasurer, Vice-President, CFO, Secretary, etc. but these are just titles and there’s no formal requirement that they have a particular title.  The duties and responsibilities of the officers are generally spelled out in the corporate by-laws and more specifically spelled out in an employment contract.

written by admin \\ tags: articles of incorporation, board of directors, corporate matters, corporation directors, limited liability corporation, roles and responsibilities, shareholder, shareholders

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to transferring shares from a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your  Ontario or Federal corporation.

So you want to sell your shares, eh? Well, the first step to actually selling your shares is to determine if the corporation’s Articles of Incorporation have anything to say about transferring the shares.

Many a time, you’ll find standard boilerplate language that says the following in part 8 of the Ontario corporation’s Articles of Incorporation:

The right to transfer shares of the Corporation shall be restricted in that no shareholder shall be entitled to transfer any share or shares of the Corporation without the approval of:

1. The directors of the Corporation expressed by resolution passed by the votes cast by a majority of the directors of the Corporation at a meeting of the board of directors or signed by all of the directors of the Corporation; OR

2. The shareholders of the Corporation expressed by resolution passed by the votes cast by a majority of the shareholders who voted in respect of the resolution or signed by all shareholders entitled to vote on that resolution.

So the articles of incorporation are basically saying that a resolution is required by those in charge of the corporation to permit the share transfer.  Otherwise, someone could yell ‘foul’ and put the whole share transfer up into the air (leading to court case).  This shouldn’t be a problem if there’s only 1 shareholder, 1 director, and 1 officer (all happening to be the same person).  But disputes may arise where a group of shareholders try to transfer their shares without the directors’ or other shareholders’ approval.

So, make sure you read the Articles of Incorporation to see if there are any restrictions on transferring the shares.   The key thing to keep in mind is that if, for some reason, it’s too difficult for a shareholder to obtain the approval necessary to have their shares transferred, then they might make a case to amend the Articles of Incorporation to remove those restrictions.  Attempting to amend the Articles is not easy: you need a resolution from two thirds of the shareholders entitled to vote and who cast their vote at a special meeting.

As an alternative to having restrictions on share transfers in the Articles of Incorporation, shareholders could simply place such restrictions in a Shareholders Agreement.  Amendments could be made without the need to have the corporation file Articles of Amendment.

written by admin \\ tags: articles of incorporation, board of directors, business lawyers, court case, limited liability company, ontario corporation, share transfer, toronto

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to creating a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your  Ontario or Federal corporations.

Sure, you’ve heard it before: corporations typically have Class A shares (or common voting shares) and Class B shares (or preferred non-voting shares).  But have you heard of Class C shares which are designed specifically for income-splitting?  The reality is that, so long as you have one type of common voting share, you can be quite innovative with the characteristics you assign to other classes of shares.

So lets get into nitty gritty of what I mean byClass C “income-splitting” shares.  Basically, these are a class of shares that are subservient to Class A and Class B shares in virtually all regards. Specifically, you can design Class C shares such that they:

• have no voting rights;
• have no voting rights or right to dissent with respect to issues revolving around shares, classes of shares, cancellation of shares, issuance of shares, etc.;
• have a right to receive a non-cumulative dividend (as determined and declared by the board of directors from time to time);
• be redeemable by the corporation for a pre-determined price (e.g. $1.00);
• be redeemable by the corporation upon liquidation, dissolution, or winding up for a pre-determined price (e.g. $1.00 each);
• be denied entitlement to any additional profit above and beyond what was declared by the board (which would go to Class A and/or Class B shareholders)

So what’s the purpose of having such a subservient class of shares subect to the rights and entitlements of Class A and Class B shares?  Simple: keep corporate control out of these shareholders’ hands while giving them compensation in the form of dividends from time to time .  These class of shares can be redeemed (which means cancelled) for a pre-determined “redemption amount”.  Overall, this class of share seems good for a silent investor who is comfortable with not getting involved in the long-term or day-to-day decision making that is undertaken by the Class A voting shareholders, the board of directors, and the executive team (i.e. the President, Vice-President, Secretary, Treasurer, etc.).  The difficulty with these class of shares may be in trying to value them (i.e. getting to a “redemption amount”).  This will be negotiated by the corporation (through its directors/officers) and the potential shareholders.  Typically, valuing shares is based on the future earning potential of the corporation discounted to today and then divided among the shares.  When you add up all the future expected dividends of a particular class of shares, you’ll end up with something that resembles the future price of the share today.  It’s more of an art than a science to value shares.  Getting a professional valuator, accountant, or lawyer involved could help get to a fair market value.  At the end of the day, the value of a Class C preference income-splitting shares will be whatever the potential shareholder and the corporation are willing to agree upon (which depends on a number of real life circumstances).

written by admin \\ tags: articles of incorporation, business incorporation, business lawyers, class a shares, class b shares, common voting shares, corporation, cumulative dividend, income-splitting shares, incorporation, lawyer, lawyers, limited liability company, preferred non-voting shares, shareholder, shareholders, shareholdings

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to creating a limited liability company, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you draft and submit articles of incorporation for Ontario or Federal corporations.

As a follow up to my previous blog post about limited liability companies, I thought it would be worthwhile to discuss some of the things that go into the Minute Book (which is often overlooked when people incorporate their businesses).

A Minute Book is just a compendium of documents that help organize the corporation.  It doesn’t have to be in any particular form.  It’s more like a binder than anything else where you can slip in the following (usually in this order):

• Incorporation Certificate;
• Articles of Incorporation;
• By-Laws of the Corporation;
• Consents to Act as Directors;
• Resolutions and Meeting Minutes of Director and Shareholder Meetings;
• Register of Directors (this shows who has been a director, when they were a director, and their address);
• Register of Shareholders (this shows the class of share and number of shares issued to a particular shareholder);
• Stated Capital (which shows the number of issued and outstanding shares);
• Share certificates (these are the pieces of paper which show who owns the shares in the corporation); and
• Corporate seal (although it is not formally required, a corporation may use a corporate seal which may have a logo and its name on it to stamp on documents for business purposes).

written by admin \\ tags: articles of incorporation, articles of incorporation by laws, business lawyers, business purposes, compendium, consents, corporate seal, federal corporations, incorporation certificate, limited liability companies, limited liability company, meeting minutes, minute books, ottawa business, professional assistance, register of shareholders, share certificates, shareholder meetings

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting articles of incorporation, corporate by-laws, shareholder agreements, or resolutions involving shares, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions and assist you in those regards.

What are shares?  What kinds of characteristics do they have?  How are they valued?  Well, in this blog, I’ll be addressing these issues in the context of a federal corporation governed by the Canada Business Corporations Act.

Lets begin with the basics.

Incorporated businesses are owned by persons (which include individuals, sole proprietorships, partnerships, trusts, joint ventures, not-for profit corporations, and other corporations) through shares.  Each corporation, through its articles of incorporation, can designate different classes of shares (i.e. shares with different characteristics).  At a minimum, section 24(3) the Act requires that a corporation have at least one class of shares.  That class of shares are called voting shares because they allow the holders to vote at any shareholder meetings.  They also allow the shareholders to receive dividends as declared from time to time and in the discretion of the board of directors (recall that the shareholders vote in the board of directors through an election).  Finally, the voting shares give their holders the right to receive the remaining property of the corporation on dissolution.   Remember that creditors (secured and unsecured) are entitled to be repaid before shareholders upon dissolution.

If the articles of incorporation provide for more than one class of share, then things can get interesting.  For example, a corporation can have 3 classes of shares (call them Class A, B, and C), all of which carry different rights with respect to voting (voting vs. non-voting), dividends (variable vs. fixed), and priority upon dissolution.  For example, Class C shares may be non-voting, having a right to regular dividends, and have priority over Class A shares.  This puts the Class A shareholders at risk of not getting anything if the corporation goes into dissolution – particularly if there isn’t enough assets to pay out creditors and priority shareholders.

Whenever shares are issued (i.e. sold/transferred to a shareholder in exchange for money, property, or past services rendered – see s. 25(3)), their value fluctuates depending on (1) the value of the company and (2) the total number of issued and outstanding shares.  With respect to the latter, if the corporation continues issuing more shares to different parties, then the original shareholders’ shares will be diluted in value.  In privately-held companies, valuing the shares is much more difficult.  Sometimes, shareholders value the shares as a multiple of something (e.g. book value) instead of potential earnings discounted to today. The value of the shares is typically pre-determined according to some formula set out in a Shareholders Agreement.  If a Shareholder Agreement doesn’t exist, the parties can seek help through a lawyer, consultant, business valuator, accountant, etc.  At the end of the day, the fair market value of the shares is typically described as the price that two arms length individuals would be willing to buy/sell the shares if they didn’t have to (i.e. if they weren’t forced to).

Finally worth mentioning is that the ability to transfer shares may be restricted in the Articles of Incorporation or a Shareholders Agreement.  Such restrictions are worthy of another blog entry entirely.  Furthermore, private corporations (unlike public ones) are restricted in terms of the number of shares they can have issued and outstanding.  Specifically, private corporations can only have 50 different shareholders or less.

written by admin \\ tags: articles of incorporation, business, business incorporation, business lawyers, canada business corporations act, incorporators, lawyer, lawyers, shareholder, shareholder agreements, shareholder meetings, shareholders, shareholders vote, shareholdings, toronto

Ottawa business lawyers and attorneys on Dynamic Lawyers can help you with your business needs.  They can advise you on how to properly structure your business, (be it through a sole proprietorship, partnership, joint venture, corporation), on how to deal with disputes that may have arisen during the course of your business operations, or on how to dissolve the business.

With respect to the latter, it is worth mentioning that I have and am dealing with a number of business dissolutions here in Toronto (it may be the poor economic times?).  There are a number of issues which come up which you may not realize (i.e. unless you’re a lawyer and you are trained on and deal with these things regularly).  Typically, these issues include:

• Division of business assets.
• Responsibility for business liabilities – particularly the lease, supplier agreements, employment agreements, and tax obligations.
• Preparing the necessary paperwork (e.g. bookkeeping, taxes, government forms) to dissolve the business.
• Ensuring compliance with the business’ internal documents (e.g. partnership agreement, corporate by-laws and resolutions, shareholder agreements, and articles of incorporation, etc.).
• Informing customers (both past and present), employees, and other stakeholders of what is happening with the business.

At the end of the day, you will likely need a number of documents and agreements prepared by an Ottawa business lawyer in order to help oversee the business dissolution.  For example, you should have a lawyer explain the various options and then draft some type of dissolution agreement for all the parties to sign off on.  Next, you may need your lawyer to draft and/or negotiate terminate and release of liability agreements for landlords and suppliers, etc.  Finally, your lawyer may be called upon to prepare the government forms to submit in order to dissolve the corporation. Finally, if business partners take issue with and dispute the steps along the way towards dissolution, then lawyers may be also called upon to try to negotiate a settlement or resolve the issues through litigation.

In any event, you should definitely consult an Ottawa business lawyer before trying to do any of these things yourself.  Doing so will save you time, money and aggravation in the long run and make sure that your rights are protected and your interests are advanced.  So what are you waiting for?  Go to Dynamic Lawyers and make a post if you need an Ottawa business lawyer (100% free and anonymous)!

written by admin \\ tags: articles of incorporation, business assets, business lawyer, business lawyers, business liabilities, business operations, dissolution, economic times, employment agreements, government forms, ottawa attorneys, ottawa business, ottawa business lawyer, ottawa lawyer, partnership agreement, shareholder agreements, sole proprietorship, tax obligations, venture corporation

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.   If you need legal advice with respect to drafting or reviewing Articles of Incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto business lawyers registered on the website who can answer your questions or help you draft and submit articles of incorporation for Ontario or Federal corporations.

Incorporating a business: a few words should be written about the roles and responsibilities of those involved with and acting on behalf of or for the corporation.

A corporation is created by having the initial directors file articles of incorporation in the jurisdiction in which the corporation is going to have its head office (provincial licenses will also be required to operate the corporation in particularly provinces).

After this, the directors have got a few things to do to get the corporation organized and up and running.  For example, they will need to pass a By-Law (which gives the corporation’s directors power-making authority), pass director resolutions, issue shares to shareholders (and have the shareholders subscribe to shares), have the shareholders ratify the by-law, have the shareholders vote in the new directors, etc.  Without these essential steps and documents, a corporation is not a legally operational entity.

The board of directors is comprised of individuals and typically a chairperson who oversee the affairs of the corporation , but not typically on a day-to-day basis.  The directors are typically paid to sit on the board, but it’s not a lot of money (as compared with the corporate officers) because they don’t meet that often and are not responsible for the day-to-day affairs of the corporation (as officers are).  The board is typically comprised of individuals with expertise in certain areas and who sit on a number of corporate boards.  They offer their insight and are accountable to the shareholders who vote them in.

For their part, shareholders are the owners of the corporation and have the power to vote in the directors of the corporation.  If there is only one sole shareholder holding all of the shares of the corporation then that person could vote in all of the directors.  It is possible to have only one shareholder and one director of a corporation.

Finally, officers of a corporation are appointed by the board of directors in order to oversee the day-to-day management of the corporation’s affairs.  The titles of officers are not that important, although traditionally most people have come to know officers as one of the following: President, Chief Executive Officer, Treasurer, Chief Financial Officer, Secretary, Vice-President, etc.  It does not really matter what these individuals are called.  Often, their titles, roles, and responsibilities will be outlined in a corporate by-law, which establishes their position and sets out their qualifications, powers, duties, etc.  Officers can be replaced by the board of directors, to whom they are accountable.

So to summarize: shareholders with voting power will vote in the directors on an annual basis (or sooner in certain circumstances), directors have the power to manage the corporation and they meet only a few times a year, and officers (e.g. CEO, VP, CFO, Treasurer, President, etc.) are the people who run the corporation on a daily basis and who are appointed (not elected) by the directors on an annual (or sooner in certain circumstances) basis.

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