NEVER INCORPORATED A COMPANY BEFORE?
Did you incorporate a company on your own without professional help and guidance of a trained business lawyer to explain share structures and company articles?
If a company has not been properly structured from the start, with a comprehensive set of articles and robust capital structure, the total cost to restructure a deficient share structure years later when tax planning is undertaken or the company is to be sold, can far exceed the costs of putting a good foundation in place from the start.
The information below will help you better understand how to create and structure a new British Columbia company.
COMPANY’S REGISTERED AND RECORDS OFFICES
The British Columbia Business Corporations Act (the “Act”) requires every British Columbia company to maintain two types of “official offices”:
(1) Registered Office; and
(2) Records Office
Both of these types of offices need to be located in British Columbia1 and are usually located at the same place2 but need not be.
The company’s Notice of Articles, which is the document that sets out the company’s basic governance rules, must identify both its registered office and its records office by setting out both its mailing address and its delivery address for process service for delivery of court documents in each case.3 A company’s first registered and records office addresses are shown on the Notice of Articles upon incorporation.4
“Delivery address”5 is defined under the Act and does not include a post office box. Plaintiffs starting lawsuits cannot serve processes (e.g., deliver documents of a court claim filed) on a postal box and so the registered office must be street access and the records office a postal box. The registered and records offices must each be accessible to the public during statutory business hours. The Act defines an “office” and means premises having a unique mailing address or delivery address exists.
WHY HAVE YOUR COMPANY’S REGISTERED AND RECORDS OFFICES AT A LAW FIRM?
It would be unusual and, for a few reasons, not a good idea to have the company’s Registered Office and its Records Office at two different places. Centralizing record keeping in one place is efficient and less apt to cause communications oversights.
Typically, a business law firm acts as the company’s R&R offices and that is where the company’s corporate record (sometimes called its “minute book”) containing all of the company’s important documents is safely kept and administered. Sometimes, the sole director or an accountant may be the R&R office, like when it is a simple personal services company (one-person services contractor, management consultant).
Beyond this scenario, there are good reasons to keep all of the company’s corporate records secure in the business law firm.
- Easy and efficient to access when conducting corporate legal work;
- Safe and secure;
- Timely responses for legal matters; when served with a lawsuit the time to draft and ready a considered response and file a Reply in court is a matter of a few weeks.
In the normal course, most companies arrange matters as follows:
- The accounting firm takes care of the financial matters (publishing financial statements etc.); and
- The law firm takes care of the corporate work (drafting director’s resolutions, contracts, loan documents, transaction work and securitization of assets), etc.
You can imagine it would be a path that could easily lead into professional liability if a lawyer (who is not qualified as a CPA) started carrying out accounting work and, conversely, so for the accountant to undertake corporate legal work.
COMPANY RECORDS MANAGEMENT: TAX AND LEGAL MATTERS INTERSECT
With a view to efficiency and risk management, ideally, the accountant and lawyer should work closely together to carry out the company’s work. For example, the accountant might determine that company directors intend to distribute retained earnings, and determined that the type of dividend (eligible, capital, ordinary, etc.) and that is in the context of corporate law and the company’s articles, which together determine the essence of the director’s resolution.
WHY USE SEVERIDE LAW TO CREATE YOUR NEW COMPANY AND ACT AS ITS REGISTERED AND RECORDS (R&R) OFFICES?
We have all seen those popular home renovation shows where things can go horribly wrong and costly for homeowners, and the host invariably implores viewers to “do it right the first time” and the age-old saying “don’t be penny-wise but pound (dollar) foolish.”
Corporate and financial records are no different. Fixing deficient and corporate records can be costly and jeopardize the good standing of the company, and can create personal liability for its directors. Having a well-kept corporate record book will be especially important for tax audits and, more happily, when the time comes to market and sell the company and obtain the highest price possible for its founders.
Putting time and effort into establishing and maintaining a professional corporate record book tends to pay off in the longer run.
- Having a robust capital (share) structure is helpful for taxing planning and transfers of ownership between family generations. It would be necessary to ensure that the company’s articles have, apart from common voting shares, properly authorized shares to permit payment of dividends to the various shareholder(s). In addition, the company shareholder may qualify for the lifetime capital gains exemption (currently about $814,000), which is one advantage over receiving income as a sole proprietor.
- There may come a day when you decide to sell your company, and having a well-kept corporate record book helps to give potential buyers of your company greater certainty and assurance. In order to feel motivated to offer a higher purchase price as compared to being provided with shambles of paper stuffed into a shoebox to take an extreme alternative, to make the point.
- In addition, CRA auditors are more apt to leave you with “a passing grade” when presented with a well-kept, complete corporate record book along with a similarly refined set of financial statements, not unlike the positive perception these organized, professional documents tend to assure potential future buyers of your company.
The foregoing is general information and not to be relied upon as legal advice. Bear in mind that legal advice is fact-specific, and the law changes over time. Please meet with us in person so that we can get to know you and learn about your business, and provide appropriate legal advice to help it thrive and flourish.
We would be pleased to assist you!
201 – 5027 47A Avenue, Delta, BC V4K 1T9
Oliver B. Hamilton, BA, MBA, LL.B., TEP