Businesses are expected to follow the myriad laws set by the authorities. Therefore, whether small or big, businesses need an Lawyer to ensure they function properly and are compliant with the set laws. Issues such as property purchases and preparing taxes require legal help. Disputes and litigation require law expertise to prevent serious consequences, as well. This is where business Lawyers come in handy. They offer legal help to businesses. Below are other important benefits of hiring a business Lawyer Ottawa organizations can trust.
A Lawyer Will Provide Your Business with Advice
Business Lawyers help business owners to understand different legal issues, such as lawsuits and legal violations, that might impact their operations. They provide the required advice and legal guidance to help you come out of the legal situations or avoid breaking the law in the first place.
A Lawyer Can Facilitate Dispute Resolution
A business may fall into conflict with other establishments. In such instances, a business Lawyer will come up with legal options that are helpful to both parties. Note that litigation takes time and costs a lot of money. This is why it is vital to opt for mediation and arbitration. According to various reports, only 4% of cases of personal injuries are resolved through the court, while 96% are settled through negotiation. These private negotiations and conflict resolutions are preferable for a number of reasons -- and your Lawyer can help you achieve a favorable outcome.
A Lawyer Will Help Businesses Stay On Top of Legal Changes
With laws and regulations changing every day, it is quite hard to fully understand what is required of you as a business owner. This is where the business Lawyers come in handy. They help you to avoid violating the law. Business Lawyers also help to negotiate legally binding agreements such as partnerships agreements and leases. Essentially, a business Lawyer ensures that everything you do is in line with the law.
A Lawyer Can Navigate the Legal System
At some point, you may find yourself on the wrong side of the law. A business Lawyer will help you deal with legal problems as they arise. If you're facing a lawsuit, a Lawyer can ensure your rights are protected. An adept Lawyer can even tilt the dispute to your advantage. A business owner should never try to handle any legal disputes on their own, as this can end very poorly.
A Lawyer Can Connect You With a Specialist
If you are in need of specialized assistance, business Lawyers can refer you to the right professionals. Some cases, such as complicated tax matters, may require extra help. Lawyers are well-connected can direct you to a specialist who can provide guidance and assistance for all your business needs.
A Lawyer Can Help You Avoid Mistakes
Running a business is associated with numerous legal pitfalls. You are susceptible to making legal mistakes, regardless of whether you’re a rookie or an experienced business person. A good business Lawyer is well versed with business knowledge and pitfalls that you may come across. A business Lawyer helps you avoid major problems, some of which you may not even be aware of. Employment lawsuits can put your business profitability at risk. It is much better to prevent lawsuits before they occur instead of dealing with them later.
A Lawyer Can Ensure Your Contracts Are Sound
One of the most important things for a business is to ensure they have solid contracts. Otherwise, other entities may take advantage of incomplete or vague agreements. Solving cases that come as a result of this sloppiness can be very costly. Business Lawyers help to draft airtight agreements, hence avoid future disagreements and potential losses.
A Lawyer Can Make It Easier To Get Paid
Dealing with some partners, clients, and business associates can be quite stressful. Some people are reluctant to pay for services or supplies. If someone owes you money and they do not show commitment to pay you, consider using your business Lawyer. Ask the Lawyer to send a request on your behalf. Business Lawyers will not only motivate debtors to pay you, but they also know the steps to take in case they totally refuse to pay.
Businesses both small and big needs to have a business Lawyer. Corporate Lawyers do not only deal with lawsuits but also can help you with drafting contracts and operating the business in line with the law. They may also allow you to avoid costly legal action. For more information, please contact our firm today.
Frequently Asked Questions
I am the sole proprietor of a profitable construction business that I want to expand. I’m nervous about the risk associated with the business and its expansion. Should I incorporate?
We would strongly recommend incorporation. Incorporation provides you with limited liability to protect your personal assets from creditors, and tax advantages that will help you grow your business and your wealth.
Limited Liability
A corporation is a legal entity distinct from its shareholders. The obligations, debts and liabilities of the business are those of the corporation and not of its shareholders. The protection from creditors is a significant advantage, particularly for businesses that are inherently risky. As the sole proprietor you are currently liable for every debt, liability, obligation and claim against your business. In your construction business, an inadvertent error or mistake by a sub-contractor, or simply the failure of the project caused by others, could result in huge liabilities for which you are personally exposed to creditors, risking loss of your house, savings and other assets. Incorporation of your business creates a significant barrier of protection. (Note: there are statutory and other limited exceptions to the protection provided by a corporation)
Income Taxes
Active business income earned by a corporation is taxed at a much lower tax rate, approximately 15.5% in Ontario on income up to the small business limit of $500,000. This presents two wealth planning opportunities. Firstly, a growing business requires working capital. As a sole proprietorship, growing working capital is hard because profits are taxed at your personal marginal rate of taxation which may be in excess of 50%. By incorporating, you can grow your working capital, and thus expand your construction business, at a much faster rate because of the low rate of corporate tax. Secondly, by leaving profits in the Corporation in excess of your personal needs, you can grow your retirement savings in the corporation at a much faster rate. (In subsequent publications, we will talk about how to creditor-proof these savings).
Tax Splitting
A corporation provides for legal tax splitting with members of your family, if they are made shareholders of your corporation. The shares of your corporation may be structured so that you remain in control of the corporation notwithstanding shares issued to family members.
“I’ve been told I need a Shareholder’s Agreement - do you have a standard agreement I can use” is something we hear with frequency. It reflects an understanding by the client that a Shareholder’s Agreement is a “good thing”, but without an understanding of what that good thing is. Generally the response of legal counsel to this question is that there is no such thing as a “standard” Shareholder’s Agreement, let’s meet and talk. So what is it about Shareholder’s Agreements that are so valuable and why isn’t there a standard form, like a real estate agreement?
At a high level of abstraction, a Shareholder’s Agreement is a document that expresses the expectations of shareholders in respect of a corporation through legal obligations and rights. The task of the Lawyer in preparing the Shareholder’s Agreement is threefold - discerning what the expectations are (and those expectations are often not fully formed) – providing counsel on the legal and tax implication on the various alternatives by which those expectations may be realized - and expressing those expectations in the form of contractual terms that bind the parties.
For example, shareholders in a narrowly held private corporation may have an expectation that on death the shares will be purchased. In the absence of a Shareholder’s Agreement, this expectation may not be realized. There is no statute or common law requiring or obligating a purchase. If the remaining shareholders are unwilling to agree to a purchase, the estate is left with the shares and a tax bill. Nothing of course prevents the parties from negotiating a purchase, but the relative bargaining power may have shifted in unpredictable ways, and planning opportunities, such as insurance funding, may have been missed. A Shareholder’s Agreement that addresses these expectations will reflect the parties prior expectations for fairness, and will create certainty. Legal counsel will discuss alternatives including the corporate purchase of the shares, purchase by the remaining shareholders, and hybrids including spousal rollovers, the tax implications under the alternatives to the estate and to the remaining shareholders, the use of insurance funding, payment terms, security and so forth.
In family held corporations, expectations for succession (how management is succeeded) and liquidation (how the shareholding interests are turned into cash) are particularly difficult and require unique and sometimes innovative solutions. A Shareholder’s Agreement is a valuable tool in estate planning for resolving how competing expectations for liquidation and succession are accommodated.
I want to become an entrepreneur and start a business. Should I incorporate now, or start as a sole proprietorship and delay incorporation to a later date?
The advisability of incorporation is dependent on the particular facts and personal preferences of the entrepreneur. The role of the Lawyer and other professional advisors is to help draw out the relevant facts and explore personal preferences to assist the entrepreneur in making the decision that is right for her. Some of the relevant factors include:
Risk. Is the proposed business inherently risky? The shield of limited liability that an incorporated entity provides to the entrepreneur is an important benefit (note that the shield from liability is not absolute);
Tax. A valuable attribute of an incorporated entity is the relatively low tax rate (approx. 16%) payable on the first $500,000 of net income. This allows a profitable incorporated entity to grow much quicker using internally generated working capital than a similarly sole proprietorship where a marginal tax rate in excess of 50% of profits may be payable. An exception is where the sole proprietor has other sources of income and it is anticipated that the new business will suffer losses in the start-up year(s) – it may be possible to set off the losses against the other income and thus reduce the overall tax burden;
Costs. Incorporation of the business at an early stage is less expensive than incorporation once the business is up and running. Once the business (sole proprietorship) is up and running it is generally necessary to use a “rollover” transaction to transfer the business from the sole proprietorship to the corporation.
Separate Existence. An incorporated entity has a legal existence separate and apart from the entrepreneur. This provides for a number of real and perceived benefits including (generally): broader alternatives for raising capital; easier salability of the business and possible availability of lifetime capital gains exemption to avoid tax on sale, continuous existence past the life of the entrepreneur, public perception of greater substance, and easier separation of personal and business dealings.