Your Corporate Structure: Having the Right One in Place
In our last blog, we talked about why succession planning should be top of mind when owning a business. One of the next key steps is understanding your corporate structure. Whether you are in a partnership, a sole proprietor, or incorporated, there are many things you should be considering now to ensure this is the best fit for you, your business and your succession planning needs. As the majority of small- to medium-sized businesses eventually incorporate, we’ll focus this blog on corporations.
Here are a few things you should be asking yourself:
– Are you set up to properly to take advantage of the Lifetime Capital Gains Exemption?
– Should your structure include a family trust? A holding company?
– Do you have the proper classes of shares?
– Are you doing everything you can to minimize your tax bill?
The key is to plan ahead because some of these items will have a direct impact on your pocket when it’s time to sell your business.
Lifetime Capital Gains Exemption
Let’s talk about the Lifetime Capital Gains Exemption – this is an important one. This opportunity permits an individual to shelter over $800,000 in capital gains from tax on the sale or deemed sale of a qualifying small business corporation’s shares. It’s a great opportunity if you qualify – you must meet specific requirements to ensure you and your business are eligible. These include meeting the specific length of ownership of shares and the percentage of assets that are engaged in active business prior to selling your business.
Splitting the proceeds of the sale of your business or multiplying the lifetime capital gains exemption is another strategy that may be applicable to your situation.
Corporations can facilitate this tax strategy by allowing you to benefit from the additional capital gains exemption of your family members.
One way to ensure your company meets these criteria is by having a properly placed holding company or family trust in your corporate structure.
Holding Companies are a great tool to ensure that your operating business does not end up owning things that the buyer of your business may never want to own or pay for, such as insurance on you or members of your family or the savings you have built up inside your corporation but did not want to take into personal income. By using a holding company, you can keep these items out of the business you are ultimately going to sell, and inside a company that you will likely keep for the balance of your lifetime.
Having the proper corporate structure in place now can have significant tax benefits and can also help you transfer your wealth in the future. We know it’s a lot of information to take in – there are a lot of financial, legal and tax implications of business succession. This is why it’s important to talk with a team of professionals who have the experience and knowledge to help find the best fit for you.
Please visit our special resource page to download our free Succession Planning Guide.