It looks like the spring of ’05 is finally here. I didn’t enjoy our monsoon season, because I grew up in Winnipeg where the sun is almost always shining brightly, even it it’s minus 40 degree Fahrenheit! I just hope the moss growing on my interlocking stones gets burned off with the summer sun. In the meantime, … In this article, I want to briefly discuss a few corporate housekeeping things you might have a chance, or the need, to address this summer.
Register and Renew Your Business Name
A business or trade name is something different from your corporate name. Let’s say your corporate name is: “Acme Rockets Ltd.”. That is your legal and corporate name. It should appear on all contracts and invoices. However, you can use a short form, like: “Acme Rockets” as your business name. Or, you might have a division called: “Acme Fire Insurance Agency” that is run under the same corporation. In both cases, those business names must be registered in Ontario and wherever you carry on business. Importantly, the business names registration is not permanent: it must be renewed every five years.
If you miss the renewal date, you can renew late, but someone else might get in before you. This deadline, like certain other legal deadlines, should be diarized at your office. Don’t count on your law firm to remind you of the need to renew before the expiry date. If you look at the reporting letter from your lawyer when the original registration was done, you will see that the firm disclaims responsibility for renewing it or reminding you.
Please note you must register a business name for a one person business (a “sole proprietorship”), also.
A very recent Ontario Court of Appeal case (highest court in Ontario)(Southside Property Management (London) Inc. v. Sibold Estate) decided that a party who failed to register its business name could not defend its interests in a court action on a contract. This is serious stuff! The conventional wisdom used to be “No problem, we’ll just register when we need to.”, but this case casts doubt on the wisdom of that approach.
Usually, your internal or outside accountant files your Annual Return for you automatically. Make sure the information on directors and officers is correct and consistent with what is in the Minute Book of the corporation. A quick call or email to your lawyer can avoid later problems.
Document Dividends, Bonuses & Shareholder Loans
Now that your financial statements have been done, and tax filings made, you are prudent to document all dividends declared, bonuses paid and shareholder loans outstanding. A simple resolution or two in the Minute Book can save a lot of grief with the CRA folks in an audit.
You may not realize that the tax-motivated plans that are successfully attacked by the tax police are usually poorly completed. Understandably, the clients get sick and tired of the lawyers and accountants over a period of months or years planning and drafting and negotiating the tax plan (estate freeze, trusts, rollovers, income splitting, etc.), and then when it is finished, some loose ends are left. This can be fatal to the legal effectiveness of the plan. Someone, maybe you, the owner, or the accountant or lawyer, should act as quarterback to ensure that every single “I” is dotted and “T” is crossed, the documents are fully assembled in a closing record, and a closing record distributed to all parties so everyone has the same song sheet to sing from.
In tax class in law school, we studied a famous tax case (publicly available in the law reports) involving the Leon family, wherein a great deal of money was obviously spent on very high calibre tax lawyers and accountants to create a complicated estate plan. When the tax guys came knocking years afterwards, some of the key documents (like the trusts) weren’t signed! “Gosh darn!”, the Leons said, or something like that, I bet. I had a bank recovery case where the debtor said to the bank, “Go ahead and sue me, but I have no money. It was all given away to my family members in my estate plan.” When I asked for the documents establishing that, I was given a bunch of draft documents that had been hastily and recently signed. I got 100% of the money back for the bank.
Did you know that bonuses can only be paid to employees of a corporation, not individuals who are just directors or shareholders or spouses of employees or shareholders? Management bonuses should only be paid to employees with T4 income from the corporation.
Powers of Attorney & Wills
This month, I received another sad call from a relative who urgently needed a Power of Attorney for an ailing father in the hospital. The problem is the father might not have the legal capacity to grant an effective Power of Attorney. Incapacity can arise suddenly for a person of any age. You can’t keep the legal forms in your wallet, ready for completion while the plane crashes or the stroke occurs. Can your business function if you are put out of commission, even temporarily?
The Pause that Refreshes
Take a few moments this summer to think and talk about the big questions, with your family, your business partners/shareholders, lawyer or accountant:
- where do you want the business to be in 5 years?
- where do you want to be in 5 and 10 years?
- what do you have to do now, to make that happen?
- what 2 or 3 things do you think you should be doing now? e.g., setting up a succession plan; creating a profit-sharing plan for key employees; removing a problem shareholder or employee; talking to other lenders to replace existing bank.
It’s OK if you can’t answer these kinds of questions, but it’s still valuable to put a few thoughts down on paper. Be strategic about your business and your life.