26 Feb 2016

Sole Proprietorship

by Holly Crosgrey | posted in: Alberta, British Columbia, Business Name Registrations, Manitoba, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Saskatchewan, Sole Proprietorship, Yukon Territory | 0

What is a Sole Proprietorship

A sole proprietorship is a registration of a business that is owned by an individual. The proprietor is said to be self-employed. This is the simplest form of a business organization. The proprietor secures the capital, establishes and operates the business, assumes all the risks, accepts all the profits and losses, and pays all the taxes. Any legal responsibilities arising out of the business activities are the proprietor’s. All assets, business or personal, can be legally used to discharge the liability.

Is Registration of a Sole Proprietorship Necessary?

If an individual wants to carry on business under his or her own name then he or she does not need to register. In fact some provinces will not allow registration under your own name. However, if you wish to obtain other types of licenses for your business, you may still need to register and may need to choose a different name in order to do so. If the individual wishes to carry on business under a name other than his or her own then he or she must register that name. An example of a sole proprietorship would be Joe’s Dry Cleaning.

What Jurisdictions in Canada Govern the Registration of Sole Proprietorships

Sole Proprietorships are governed pursuant to the provincial and territorial legislation in Canada. Depending on the province or territory in which you live, there will be a different procedure. However, basically a form will need to be completed and a fee will need to be paid. In some provinces or territories the name of the sole proprietorship will also need to be cleared and there is a fee for this. Refer to the individual provincial and territorial sections herein for sole proprietorships for more details about which provinces and territories require a name search report accompany a registration. For information on how to conduct a name search refer to the sections entitled Preliminary Name Search, Choosing a Name and NUANS Name Search Reports.

Why does the Business Name have to be Approved in Most Provinces or Territories

The practical reason why names have to be approved is to prevent the registration of names which are identical or deceptively similar. Most provinces and territories will not allow an exact business name to be registered although Alberta and Ontario will allow you to do this. The onus is still on you to ensure the name you choose and register is distinct and different from other names already registered.

The law prevents the use of names which are so similar as to confuse or mislead people, and provides a record which allows the public to determine which individuals are behind the name. The practice of registering the name does not mean you own the name. It just means that the name is protected with respect to the public interest. If you need more protection for your name you need to trade mark the name.

It is important to know that business names used in sole proprietorships do not have the same protection as a corporate name used for a company.

What are the Advantages of a Sole Proprietorship

Simple Start Up – Starting a sole proprietorship is a simple registration although consideration should be given to the name guideline procedures. The cost of registration is low.

Less Government Regulations – There are few government regulations to follow. The registration usually has an expiry date and it will be necessary for the sole proprietor to remember to renew the registration since the government will most likely not send out a reminder.

Decisionmaking – You will make all of the decisions and choose your own work projects on your own timeline

Work Hours – The sole proprietor will be able to make his or her own hours

New Challenges – There will always be new challenges as the business expands and grows

Income Opportunities – If the business is successful you will most likely make more than you did as an employee.

Tax Advantages – The government provides many tax advantages to small business owners.

Work Environment – The sole proprietor will be able to create is or her own work environment that is comfortable for them.

Less Expensive to Run – It is cheaper to run a sole proprietorship because there are fewer government requirements and managing the tax filings is less complicated

Expansion of the Business – Once the business starts to grow it is relatively easy to expand the business into a partnership or a corporation

Profits – The sole proprietor receives all of the profits of the business and does not have to share them with anyone else.

What are the Disadvantages of a Sole Proprietorship

Limited Creativity – The sole proprietorship does not have any one else to run ideas by or to obtain fresh ideas from.

Longer Hours and Less Free Time – Although you may choose your own work hours it is most likely you will work more hours than you did as an employee

Less Security – Although no one can fire you your security is only as strong as your business position. If the business is having financial difficulty it will affect you personally.

Personal Liability – The sole proprietorship is personally liable for the debts of the business and if the business has any financial difficulties, the creditors can come after the personal assets of the sole proprietor

Personal Taxation – You will be taxed against your personal tax return which can result in a higher tax rate if you make too much money

Less Money – You may make less money than you thought you would and may not be able to survive

Difficulty in Raising Capital – The proprietor may have difficult in raising capital and financing

Less Professional Appearance – A proprietorship appears as a less professional business in relation to an incorporated company. Some potential business acquisitions could be lost because the business does not appear to be ….

Government benefits – You may not be eligible for government employment benefits, health and dental benefits, life and disability insurance benefits, a pension plan, etc. and will find it necessary to pay a large month premium to pick up these benefits in your business

Investment of Personal Funds into Business – You may need to invest your savings in your business

One Person Success – Your success will be dependent solely on you and the manner in which you conduct your business. You will not have others to run ideas by or to help with the business.

Personal Liability – The sole proprietor is responsible personally for all of the obligations of the business including all losses and liabilities, including those arising from the mistakes of the sole proprietor or those of any employees he or she may have. Any lawsuit brought against the business will be the responsibility of the proprietor if any money is owed. Businesses which have any type of risk involved for employees, such as builders, contractors, may not be the best choice of business for a proprietorship because of the liabilities of any accidents that may occur and adequate insurance should be obtained

Death Results in Termination – The death, disability of the owner may result in the termination of the business

Taxation of Sole Proprietorships

Business income is taxed in the hands of the owner as personal income. All business losses, except for some, can be deducted from the owner’s personal income tax. At lower levels of income it may be more advantageous to be a sole proprietor because the corporate tax rate may be greater than the lowest personal income tax rates. At higher levels the corporate rate may be less. You should discuss this with your accountant before making a decision on the best form of business to start.

How Long Is the Registration of My Sole Proprietorship in Place

The registration of a sole proprietorship lasts from three to five years depending on where it is registered. The governments do not forewarn you that your registration is going to lapse and you must renew it just prior to or on the expiry date. Some jurisdictions may provide for a grace period. Further in some jurisdictions the registration is perpetual and it is up to you to cancel the registration if you decide to not continue the business at some point. It is suggested that you renew just prior to the expiry date.

What Happens If I Do Not Renew My Registration on the Expiry Date

If you do not renew your sole proprietorship registration on time you will need to register your sole proprietorship as a new registration. It will be given a new registration number. If this occurs you should let Canada Revenue Agency know about the new registration number so they can connect it to your federal Business Number. You should send a copy of the new registration to them with your tax return.

Do I need a GST/HST Number for My Sole Proprietorship

If your sole proprietorship is making over $30,000 a year you must charge GST/HST. Once you register for GST/HST regardless of whether you have a gross profit of $30,000 you will be expected to charge GST/HST so make sure you are at this level before you do this. Your Revenue Canada Business Number is your base number. If you need a GST/HST number it is added as an extension onto the base number. Individuals will be issued one Business Number only. If you have more than one sole proprietorship, each of them will use the same Business Number. However, if you wish you can have two separate GST/HST numbers so you can track the GST/HST on each sole proprietorship separately OR, you can combine all GST/HST for all of your sole proprietorships under one GST/HST extension number. When you register for a GST/HST extension number to your Business Number you need to consider whether you have had a Federal Business Number issued in the past for a prior proprietorship. If this is the case you would use the same Federal Business Number and just let the government know that you have registered a new sole proprietorship by sending them a copy of the registration. If you wish a new extension number then you should request this from Revenue Canada Agency.

What If the Information Provided on the Sole Proprietorship Form Changes

If any of the information on the form that you initial registered changes an amendment must be filed.

What If I Wish to Change the Name of My Sole Proprietorship?

The name of the sole proprietorship cannot be amended. If you wish to change the name of your sole proprietorship you will need to register a new sole proprietorship and cancel the existing one.

What if I Wish to Cancel my Sole Proprietorship?

In order to cancel a sole proprietorship you must file a cancellation notice. The procedure to cancel is different in each province or territory. We will be glad to assist you with your cancellation if needed.

What If I Do Not Register My Sole Proprietorship

If you decide to carry on business under a name other than your own and you do not register pursuant to the legal requirements you could be levied a fine. One of the purposes of registration is to allow individuals and corporations who contract your services to be able to include your contact information on court documents if they wish to sue your sole proprietorship. If at any time a client or customer determines that you are not registered, a complaint can be filed with the government and a fine could be levied.

On the other hand, if you wish to sue a customer for non-payment or otherwise, if you are not registered as required by law, you will not be able to pursue a lawsuit in any court.

The internet has enabled potential customers to look into businesses prior to dealing with them. In order to ensure these individuals decide to use your services or buy your products over others, a legal business is the first step in gaining their confidence.

What If I Wish to Conduct Business as a Sole Proprietorship in More Than One Province

Firstly you will need to ensure you are registered in your home jurisdiction. Secondly, you will need to register “extra-provincially” in any other jurisdiction. Contact us for more information about registering an extra-provincial sole proprietorship.

Renewing a Sole Proprietorship

A sole proprietorship registration will stay in effect for a period of three to five years depending on the province or territory. The onus is on the sole proprietor to ensure his or her registration is renewed. The government will not remind you that your registration is going to expire. It is up to the sole proprietor to keep track of the expiry date and to renew the registration just before that date. In order to renew a registration you can follow the same procedure as you did for registering the sole proprietorship in the first place.

Financial Year End of a Sole Proprietorship

A financial year end of a sole proprietorship is December 31st since it coincides with filing your personal tax return.

Why Is it Important that the Address of my Sole Proprietorship is Correct?

It is important that the government knows your current address. The government occasionally changes policies and sends out information to the address on file. If they do not have your correct address you may miss out on valuable information that could affect your business.

13 Feb 2016

Appointing Officers

by Holly Crosgrey | posted in: AB Business Corporations Act, BC Business Corporations Act, Canada Business Corporations Act, Directors Resolutions, General Corporate Law, Maintaining Your Company, MB Corporations Act, officers, Ontario Business Corporations Act, The Business Corporations Act (Saskatchewan) | 0

This article will provide guidance on how to appoint officers of a Corporation and how resignations and removal of officers are documented.

The directors of a corporation manage the affairs of the corporation. As part of that management the directors are responsible for appointing officers to assist them with their duties.

Directors can appoint officers at a meeting or a resolution can be signed by all of the directors appointing officers. For more guidance on preparing resolutions refer to directors resolutions. For guidelines on how directors can go about appointing officers at a meeting refer to directors meetings.

The statute of incorporation and the by-laws of a corporation will govern the manner in which officers can be appointed, removed or resign.

Appointing Officers

The directors initially approve the officers of the Corporation upon incorporation or each year at the annual meeting (see below for more information on annual resolutions/meetings).

An example of a resolution appointing officers is as follows:

2-Appointment-of-Officers

Resignation of Officers

When an officer wishes to discontinue working with a company, that person will resign as an officer from the position he or she is holding. See an example of a resignation of an officer below:

1-Resignation-of-Officer

Once a resignation has been received by the directors of a corporation, they will need to decide whether they wish to appoint another officer to replace the person resigning. Depending on the type of position, it may not be necessary to appoint a replacement. In situations where the directors wish to appoint a replacement officer, they will prepare a resolution in the form below:

3-DR-Resigning-Officer

Remove an Officer

The general operating by-law provides the manner in which an officer may be removed. The directors of a corporation will approve a resolution to remove the officer and appoint a replacement to that position. Below is an example of this form of resolution:

4-DR-Removing-an-Officer

Annual Resolutions

Each year a company must approve certain matters. Officers may be excluded from appointment and new ones brought on at this time without being removed or resigning. For more information these approvals see annual resolutions.

For more information about officers titles refer to Officers Titles.

Notice of Change

Most jurisdictions will provide in the governing statute that a notice of change must be filed to update the government’s database with respect to changes in officers and directors. In many cases this can be done online using a company that has access to the databases or a paper filing can be done. Paper filings are not as reliable but in most cases they are free to file.

Statute Reference:

Business Corporations Act (Ontario)

“1(1) “officer” means an officer designated under section 133 and includes the chair of the board of directors, a vice-chair of the board of directors, the president, a vice-president, the secretary, an assistant secretary, the treasurer, an assistant treasurer and the general manager of a corporation, and any other individual designated an officer of a corporation by by-law or by resolution of the directors or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any such office;

“senior officer” means,

(a) the chair of the board of directors, a vice-chair of the board of directors, the president, a vice-president, the secretary, the treasurer or the general manager of a corporation or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any such office, and

(b) each of the five highest paid employees of a corporation, including any individual referred to in clause (a);”

“117. (1) After incorporation, a meeting of the directors of a corporation shall be held at which the directors may,… (d) appoint officers;”

“127. (1) Subject to the articles or by-laws, directors of a corporation may appoint from their number a managing director or a committee of directors and delegate to such managing director or committee any of the powers of the directors. 2006, c. 34, Sched. B, s. 21 (1).”

Canada Business Corporations Act

“2(1) “officer” means an individual appointed as an officer under section 121, the chairperson of the board of directors, the president, a vice-president, the secretary, the treasurer, the comptroller, the general counsel, the general manager, a managing director, of a corporation, or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any of those offices;”

“104 (1) After issue of the certificate of incorporation, a meeting of the directors of the corporation shall be held at which the directors may…..(d) appoint officers;”

Business Corporations Act (Alberta)

“121. Subject to the articles, the bylaws or any unanimous shareholder agreement, (a) the directors may designate the offices of the corporation, appoint as officers individuals of full capacity, specify their duties and delegate to them powers to manage the business and affairs of the corporation, except powers to do anything referred to in section 115(3), (b) a director may be appointed to any office of the corporation, and (c) 2 or more offices of the corporation may be held by the same person.”

Business Corporations Act (British Columbia)

“141 (1) Subject to subsection (3) and to the memorandum and articles of a company, the directors may appoint officers and may specify their duties.

(2) Unless the memorandum or articles provide otherwise,

(a) any individual, including a director, may be appointed to any office of the company, and

(b) 2 or more offices of the company may be held by the same individual.

(3) An individual who is not qualified under section 124 to become or act as a director of a company is not qualified to become or act as an officer of the company.

(4) Unless the memorandum or articles provide otherwise, the directors may remove any officer.

(5) The removal of an officer is without prejudice to the officer’s contractual rights or rights under law, but the appointment of an officer does not of itself create any contractual rights.”

The Business Corporations Act (Saskatchwan)

“116 Subject to the articles, the bylaws or any unanimous shareholder agreement: (a) the directors may designate the offices of the corporation, appoint as officers persons of full capacity, specify their duties and delegate to them powers to manage the business and affairs of the corporation, except powers to do anything referred to in subsection (3) of section 110; (b) a director may be appointed to any office of the corporation; and (c) two or more offices of the corporation may be held by the same person.”

The Corporations Act (Manitoba)

“99(1). After the issue of the certificate of incorporation, a meeting of the directors of the corporation shall be held at which the directors may…..(d) appoint officers;”

By-law Provisions Regarding Officers

An example of a clause in a general operating by-law which governs how officers are appointed is as follows:

“Appointment – The board may from time to time designate the offices of the Corporation, appoint officers (and assistants to officers), specify their duties and, subject to the Act or the provisions of any unanimous shareholder agreement, delegate to such officers powers to manage the business and affairs of the Corporation. A director may be appointed to any office of the Corporation. Except for the chairman of the board and the managing director, an officer may but need not be a director. Two or more offices may be held by the same person.”

An example of a clause in a by-law which provides for the removal or resignation of an officer is as follows:

“ Term of Office (Removal) – In the absence of a written agreement to the contrary, the board may remove, whether for cause or without cause, any officer of the Corporation. Unless so removed, an officer shall hold office until his successor is appointed or until his resignation, whichever shall first occur.”

12 Feb 2016

Declaring a Dividend on Shares of a Company

Dividends are payments declared by the directors of a company which are paid to the shareholders (owners) of a private or public company out of the profits of that company. When declaring a dividend the dividend must be declared equally to all shareholders of a class of shares and are paid out to each shareholder in proportion to the number of shares held.

When declaring a dividend, dividends can be paid as money, shares, warrants or property.

The directors of a company will pass a resolution at a meeting of the directors or by a resolution signed by all of the directors declaring a dividend to the shareholders of a specific class of shares.

Example of a Dividend Calculation

Below is an example of how a dividend is calculated and declared:

Declaring a Dividend in the aggregate amount of $10,000
The company has 2 shareholders with 100 issued and outstanding shares.
Shareholder #1 owns 40 shares. Shareholder #2 owns 60 shares.
Shareholder #1 will receive $4,000 in dividend profits
Shareholder #2 will receive $6,000 in dividend profits
The dividend per share is equal to $100

Relevant Dates When Declaring a Dividend

The date the dividend is being declared payable. Dividends cannot be declared payable in the past and this date must be either the same date of the resolution approving the dividend or for a future date.
The date upon which the shareholders of record is determined. This provision comes into play more for public companies since shares for those companies regularly trade and the number of shareholders changes from day to day however even private companies must follow the same rules. A record date must be determined when declaring a dividend and the only shareholders who would receive the dividend would be those who were shareholders of record on that particular date. This prevents a shareholder who held shares in the company prior to the declaration of the dividend having a right to a dividend declared after he or she is no longer a shareholder.
The date of the directors resolution approving the dividend. Frequently resolutions are left undated but it is very important when declaring a dividend to include the actual date the resolution was approved so that it is very clear that the dividend is being declared for a current or future date.

Which Classes of Shares are Eligible for Dividends

Common shares have the automatic right to receive dividends, however, preference or special classes of shares are only entitled to receive dividends if the Articles of the Corporation provide for it. As well, there may be certain terms outlined in the Articles to be considered when declaring a dividend on special or preference shares.

Statutes Governing the Declaration of Dividends in Canada

Income Tax Act (Canada) deals with dividends in several different sections and it is a good idea to discuss dividends with your accountant before declaring them since there are tax consequences upon declaration of a dividend.

Approval for declaring a dividend is governed by the companies act or corporations act in each individual province or territory of Canada. The various corporation statutes across Canada will provide either some or all of the following provisions:

A corporation shall not declare or pay a dividend if there are reasonable grounds for believing that (a) the corporation is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities and stated capital of all classes.

A corporation may pay a dividend by issuing fully paid shares of the corporation and a corporation may pay a dividend in money or property.

If shares of a corporation are issued in payment of a dividend, the declared amount of the dividend stated as an amount of money shall be added to the stated capital account maintained or to be maintained for the shares of the class or series issued in payment of the dividend.

Solvency Test When Declaring a Dividend

Most statutes will have a solvency test that must be met before any dividend is issued. The company must not be insolvent and a dividend must not be declared if it would render the company insolvent thereafter.

Resolutions to Approve a Dividend

Example of a Resolution to Approve a Regular Dividend for Money:

“BE IT RESOLVED THAT a dividend in the aggregate amount of $** payable to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation is declared payable on [declaration date] to the shareholders of record of the Corporation as of [record date].

Any director and/or officer of the Corporation be and is hereby authorized and directed from time to time to execute and deliver all documents, agreements or other writings, whether under the corporate seal of the Corporation or otherwise, as may be necessary or advisable, and to sign for and in the name on behalf of the Corporation all such documents and writings and to take all such steps as in his or her opinion may be necessary or advisable for the purpose of giving effect to the foregoing.”

Certificates of Status for Canadian Companies

Example of a Resolution to Approve a Dividend for Property:

“BE IT RESOLVED THAT a dividend in the form of [described property] now registered in the name of the Corporation (the “Property”) is declared payable to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation.

Payment of the dividend shall be effected by transferring the Property now registered in the name of the Corporation to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation on [declaration date] to the shareholders of record of the Corporation as of [record date].

The amount of the dividend shall be equal to the fair market value of the Property, which is [$500,000].

Any director or officer of the Corporation is authorized and directed to do all things and executed all instruments and documents necessary or desirable to carry out the foregoing.”

Example of a Resolution to Approve a Dividend for Shares:

“BE IT RESOLVED THAT a dividend in the aggregate amount of $1,000 is hereby payable to the holder(s) of the issued and outstanding [common] shares in the capital of the Corporation on [declaration date] to the shareholders of record of the Corporation as of [record date], such dividend to be paid and satisfied in full by the issuance to such holder(s) of the aggregate amount of [500] fully paid and non-assessable common shares.

The directors of the Corporation hereby determine that there shall be added to the stated capital account maintained for the [common] shares of the Corporation the amount of $1,000 in respect of the [500 common] shares of the Corporation issued in payment of the dividend declared.

Any one of the directors or officers is authorized and directed to do all things and execute any agreements or documents in order to effect the foregoing including the issuance of a certificate or certificates representing the [500 common] shares to the holders(s) of [common] shares of the Corporation.’

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Capital Dividends

These dividends are a different type of dividend and the rules are different. This article is with respect to regular dividends only. For more information about these dividends refer to Capital Dividend.

Buy Dividend Resolutions

If you wish to make things easy refer to this link for a number of templates that can be purchased relating to Approving Dividends Templates.

For more information about dividends refer to:

Capital Dividend

Capital Dividend Upon Redemption

Stock Dividend