New company’s structure shoul
always be carefully considered

IF YOU are going into business
for yourself, you’ve undoubtedly
researched external factors, such
as potential markets, competition,
suppliers, customers, and sources
of financing.

By Derek de Gannes
Contributing Writer

But. what about internal mat-
_ ters, such as how you will struc-
ture your company?

As any. chartered accountant
will remind. you, it’s important to
consider the financial, legal, and
tax consequences of choosing to
operate as a sole proprietorship, a
partnership, or a corporation.

’ Due to first-time costs, many.

new businesses experience losses or
make only minimal profits in the
first year of operation.

If you expect that your business
mighe be among them, consider
operating the business as a sole
proprietorship (you alone are the
principal) or partnership (where
there is more than one principal).

Either way, reasonable business
losses can be applied against other
non-business sources of income
for income tax purposes, thus
reducing the overall amount of tax
you pay.

If you opt to incorporate, your
corporation exists as an entity in
its own right for legal and tax
purposes,

This means you must file a sep-
arate corporate income tax return.

Business losses, however, cannot
be written off against personal
income given the separate identity.

Regardless of which structure
you choose, bear in mind that you
may opt for a non-calendzer
year-end for the business, that is,
a year-end other than Dec. 31.

Doing so can, in the case of a
sole proprietorship or partnership,
result in a one-year deferral of tax
on such income.

Say you started ihe unincor-
porated business on April 1, 1993,
and the business is profitable.

Let’s assume you pick Jan. 31,
1994 as your first year end. You
do not have to report the results
of that first profitable period, and

potentially pay tax on your prof-
its, until you file your 1994 per-
sonal income tax return.

Timing of the first year-end can
also reduce your instalments of
tax on income not subject to the
normal withholding at source.

By delaying the year-end and
reporting of business income, your
tax base, the amuunt on which
subsequent year instalments are
calculated, is reduced accordingly.

Exposure to liability is another
factor to consider when structur-
ing your company.

Since a corporation is distinct
from its owner, creditors are
limited to pursuing corporate
assets to satisfy claims, uniess you
have given personal guarantees.

Personal assets, however, are
not protected, in the case of sole
proprietorship or partnership.

It’s also prudent to conduct a
search of your business name
through the Ministry to censure
that no one else is using it. There
is a fee for both services.

Derek de Gannes is a Canadian
chartered accountant and a tax
manager.

Resolve to put affairs in order this year

QUESTION: Do you have any
suggestions for keeping household
affairs in order? I find that the
amount of paperwork required to
keep a house and small family or-
ganized is overwhelming. To top it
off, Pm not the most organized
person in the world.’

Answer: Most of ‘us find the
task of--keeping our papers:

order. a challenging one. It is easy.

to-let things slide in that area and

. yet:most of us have also run into
problems because. something im-
portant is lost or misplaced.

We have found.that the begin-
ning of a new year is a great time
to make. sure that things are: in
order,, of to start getting orga-
nized.:In fact, it could be a sort of
New ‘Year’s resolution: ‘‘to resolve
to put our affairs in order.’’

Here is'a checklist of things to
_consider..
© Do you have a list’ of all credit
cards and bank. cards and bank
account numbers. kept in a secure
place?’ In the event of loss’ or
theft, this .will make reporting

much easier.’ Give. a list of where

you’ keep your: important docu- -

ments, such as wills and insurance
policies to someone you trust.

- @ Have you made an inventory of
your household possessions in the
case. of fire, theft, or damage?
This will-be necessary for. you to
make an insurance claim.

@-1s your household insurance up
to'‘date? Is your coverage adequate
to reflect the true value of your
belongings? Many people in this
area have added earthquake in-
surance ‘to their policies.

@ Do you have a will? Does your

will reflect your current wishes, or
are changes necessary? Have you
thought about putting money
aside for funeral expenses? Have
you considered a membership with
the Memorial Society of B.C.,
which guarantees reduced rates for
funeral costs? They can be con-
tacted at 688-6256.

@ Do you have a file (or envelope
or shoebox) for your annual in-
come tax receipts? Any system wiil
make it easier when tax time
comes around.

@ Do you have a_ household
budget, or at least some way of
keeping track of your income and
spending?

® Is your passport current? It is a
good idea to keep it up to date in
case of emergency travel.

Some kind of a filing system
will make your job of organizing
easier. It can be. as simple as a
cardboard box or as sophisticated
as a filing cabinet. ‘

If you can find some way of
separating papers, they. will seem
more manageable, For example, a
file or envelope for warranties of
all household appliances, one for
bank statements, another for bills
to be paid, and so on.

Since you have some trouble
keeping track of your affairs, you
may want.to determine who in
your family is responsible for
certain tasks. For example, you
could be in charge of paying the
monthly bills and your partner
could balance your chequebooks.

It is important to assess your
affairs on a regular basis, as cir-
cumstances and your needs
change.

C.M. OLIVER & COMPANY LTD.
presents a seminar on

| “HOW TO SURVIVE THE
CANADIAN DEBT CRISIS”

Guest Speaker:
Roy. 8. Bennett
(Roy.B. Bennett & Associates, Asset Managers)

Lonsdale Quay Hotel
123 Carrie Cates Court, North Van

Thursday, Jan.

20, 1994, 7-9 p.m.

Tickets available through C.M. Oliver & Company
. R.S.V.P. Alan W. Berge 668-6835

Help’s at Hand, by North Shore
Community Services (NSCS), is a
forum for discussing government
policies and programs, benefits,
consumer and iegal rights, taxa-
tion and public services. Answers
are intended only as a. general
guide and should not be applied to
individual cases without farther
consultation.

This column is prepared with
financial. assistance from the
Notary Foundation. For more in-
formation call NSCS at 985-7138.

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