There are many reasons why an accountant would recommend an entrepreneur set up a holding company, also known as a parent corporation for their business says Edmonton bookkeeping. There are many benefits to utilizing a corporate structure this way that not only can be very beneficial to use, but can also help protect business owners as well. In order to determine which is the best corporate structure, entrepreneurs need to set up a meeting with both their accountant and their Edmonton bookkeeping company in order to make that determination.
One of the first things that business owners need to understand, is what holding company is. Edmonton bookkeeping says that this is a corporation whose sole purpose is to own the shares of another corporation. The only way that these holding companies make money is by purchasing and selling assets, by profit-sharing, charging the operating company for management services. Also, business owners need to understand that transferring money from one corporation to the next keeps it tax-free until the business owner and their accountant transfers that money from the holding company to the business owner. This tax-free ability to transfer money helps accountants minimize the tax payments that an owner has to pay.
The next thing that a business owner should understand, is what an intercompany transaction is. While it may be very simple to understand that it is a business owner transferring money from one of their corporations to another one of the corporations says Edmonton bookkeeping. However, this is not the only way to do intercompany transactions. If a shareholder in the company that a business owner owns also owns shares of more than 25% of another corporation, those are called related companies and money can be transferred from one corporation to another related company completely tax-free.
The reason why this is so beneficial is that this can help business owners minimize the taxes that they have to pay if they manage that with their accountant. While the prophets of a business that are earned inside the operating company are already being subjected to the low corporate rates, if they simply paid themselves money from this corporation, they would also pay up to 48% tax on that income. However, Edmonton’s bookkeeping company says that if a business owner took the prophets from the operating company and transferred them to the holding company they can do that tax-free. Then, not only is this money protected, a business owner and their accountant can strategize the best time to either withdraw these funds to minimize taxes or invest the money for the business owner at the lowest tax rates possible. By utilizing this strategy, business owners can avoid paying almost half of that income in taxes.
By understanding the benefits tax-wise of utilizing parent corporations, Edmonton bookkeeping says business owners can significantly benefit and increase their wealth. Wealth accumulation is one of the most important and most common reasons why business owners become entrepreneurs in the first place. By utilizing this strategy can help business owners grow their wealth exponentially.
Edmonton Bookkeeping | Benefits Other Parent Corporation
While there are many benefits that entrepreneurs already know about what the benefits are of owning a parent corporation says Edmonton bookkeeping. However, they also need to understand that this type of corporate structure can significantly protect them as well. While many entrepreneurs understand that owning a corporation limits their own personal liability, by having the corporation shoulder most of the liability in their business. However, that does not protect its assets. By setting up a parent corporation, also known as a limited liability company, business owners can protect the assets that they have accumulated in their business by sheltering it in the parent corporation.
How this structure would work says Edmonton bookkeeping, is by doing an intercompany transfer of the profits from the active business which is the operating company to the parent corporation, an entrepreneur can do that tax-free. As long as the corporations are Canadian. This means the assets are then out of reach of creditors as well as in case a business is sued and owes for damages. By having two different corporations, an entrepreneur can transfer what they want to protect, tax-free into their parent company, and either pay themselves when the timing is right to minimize taxes, or to invest that money straight from their parent corporation to minimize the taxes that they have to pay on it.
There are many other benefits to utilizing a parent company. A lot of these benefits are concentrating the assets into the parent corporation instead of the operating company so that the business owner can continue to own those assets no matter what happens to their business whether it is sold, or has to be shut down says Edmonton bookkeeping. Also, this can help a business owner be prepared for when they are doing a succession plan so that their children can take over the business that they can simply transfer the corporation, instead of trying to transfer shares. This allows for the flexibility of the growth and development of the business while keeping the corporate structure the business owner has used to save taxes intact and be able to continue to own the assets that they have built up during their time as a business owner.
Edmonton bookkeeping says that these are all very important reasons why a business owner should consider listening to the Edmonton bookkeeping company and accountant when they recommend utilizing a parent corporation. By understanding, this, can help an entrepreneur do what they need to grow their business, and accumulate their wealth by minimizing their taxes. By doing this, entrepreneurs are increasing their ability to succeed in business, and protecting themselves if something happens in their business. However a business owner wants to structure their corporation, it needs to be done thoughtfully, and early on in the business as possible so that not only the right structure can be put into place, but so that an entrepreneur can learn how to do the Edmonton bookkeeping accurately to minimize errors as well.