Should I have a Holding company?
In our first blog, we discussed the issue of whether as a business owner; you should incorporate your
business. Let set the facts again:
– You have been a very successful entrepreneur; after hearing from many of your friends about
incorporation, and consulting with us, you decided to incorporate your business.
– As your trusted tax advisor, now we are coming to you, and suggesting that you should create
another company to serve as a Holding company(“Holdco”).
This is the why:
1) A Holdco would provide you with maximum protection against creditors. Considering that a
Canadian company can pay a tax free dividend to another Canadian corporation, as profits are
accumulated in your main business, you would secure them by paying them upstairs as dividend
to the holding company. We would think that all entrepreneurs are happy to know that the
product of their hard labor is safe.
CAUTION: Because of recent changes in legislation, additional planning steps are required to
really ensure that the dividend paid from your operating company to your Holdco is really free of
tax. Next time your accountant advise you to do it, ask him whether you have sufficient
safe income to do so; or better please, consult with a tax specialist.
2) Say, you and your 2 best friends have started a business that is successful. Then comes end of the year, and assuming that you all own the same share class, you all agree to be remunerated by way of dividends. The thing is tough, your wife makes a great leaving, and you don’t need the money now. Without a Holdco, you would be forced to receive to receive a taxable dividend at that time albeit not needing the funds. With a Holdco, you would receive your share of profit, and have it sit there until you personally need it.
The cost:
One more company to be incorporated and an additional tax return where there could be only a few line
entries.
Our structure
Our firm mission is to bring to small entrepreneurs the same tax tools used by large cogs. Our goal is to
demystify many of the tax concepts out there for you guys to feel that you could also implement them.
For the next few weeks through our blog posts, we will build what could look like a complicated structure,
but in truth is one any entrepreneur should have access to. After, the incorporation of the operating
company and the creation of Holdco, our current structure stands as follows:
Mr. X
Come see our Tax specialists, we will look at your particular situation, and advise you.