One of the nice things about chores around the house for the guy who has a desk job is that it's all gravy.
Nobody expects a pencil-necked walking calculator to be able to ply his baby soft hands at anything a real man would do. And what little we accomplish with tools and elbow grease is an immense source of pride.
On one such work-at-home day, years ago, I was enjoying some peaceful time off, taking my time, aided by my son, puttering around the truck changing oil and topping up fluids etc. when the phone rang. It was a very urgent sounding vice president at the office who needed me to shower up and come in right away. Yes, on my day off.
In our office, this sort of flexible work arrangement went both ways, which made it a little easier to walk away from some quality time with the boy and the truck.
A file had exploded.
Most files are an inch or two thick, until something goes wrong. In this case we had several million dollars out to a firm (several firms really - a corporate tree - a very bushy tree) who had run into some very serious financial challenges.
When a file explodes, it's like somebody pulls the plug and the cash starts draining off to Nowhereland.
It's all about lawyers and asset counting and site visits and negotiations and more negotiations and headaches and business plans, and... yeah, the file just... explodes.
And it wasn't even my file. But the previous manager was on leave, and, well, it was my turn.
There were nearly two-dozen corporate entities all intertwined.
It took two of us several days, a large boardroom and a huge white board to chart out a baseline of who owned what and which of the entities were most likely to be cash flow viable.
Tylenol.
Fortunately this was the exception both in terms of complexity and with respect to the severity of the problems our clients faced.
Selling the business
Today we start a series on selling your Canadian controlled private corporation (CCPC). That's just a long-winded term to refer to the typical Canadian small business, which has functioned as a corporation. These are crucial notes to understand for the small business family in Canada.
It's as if you have been working for this wonderful company all these years, for the boss you see in the mirror every morning when you shave and pluck your nose hairs, (sorry ladies) and now it's time for you to sort out your pension plan. That is, you're thinking the time might be right to sell the business and ferret out what you can from the equity you built with your own hands over the last few decades.
The pride you have in that transformation from being a little nervous around lawyers and accountants to having them be a little nervous around you needs to be put to rest for now. Spend the time with the professionals who can help you transition your life's work effectively.
This process should start several years before you actually sell.
In fact it should begin once you get that feeling in your gut that you're actually going to make it in business. But if this is you and you haven't done so yet, start preparing now.
First the basics - your ownership structure.
If you are the only shareholder in your operating company, you place your family at a tax disadvantage.
Qualifying small business corporation shareholders can receive a once-in-a-lifetime capital gain exemption of over $800,000 each.
That means that part, or maybe all of the growth of the shares of your family business could be tax-free. And if your spouse is also a shareholder, he or she can also qualify for this same exemption.
To qualify for these exemptions at the time of a future sale, it may be necessary to take steps now to shift away any non-active business assets from your company, such as excess cash or portfolio investments. If these things clutter up your balance sheet and make it look like a passive investment corporation, rather than an active job-creation machine, the taxman's "you-can't-have-this" alarm sounds, and you don't get the write-off.
This asset shuffling process is sometime referred to as "purification," and is not a last-minute shuffle but years in the making.
It can be as easy as having the company use cash to pay off
debts or pay dividends to shareholders, or it may involve a corporate reorganization to transfer the non-active assets (liquid investments, etc.) into a separate company.
We will flesh out much more on this topic in the weeks ahead.
As usual, these things work best when you obtain individualized, specific tax and legal advice from your own hired professionals. This article is not meant to do that for you and should not be construed as doing so.
Mark Ryan is an advisor in Prince George with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
