When business owners are setting up their business with their accountant for the first time says Edmonton bookkeeping the several things that they need to understand. One of those things, is that they will be asked if they want to set up a holding company or a parent corporation. There are several reasons why business owners should set this type of corporate structure up in their business, but unless they understand the benefits of it, they may not want to incur the additional work and cost that it could cause them.
The first thing that business owners should understand is a parent corporation, also known as a holding company or a limited liability company is corporations that have been set up for the sole purpose of owning another corporation. These corporations own the stakes and the shares in a company, keeping the business owner at armís length from their own business. This gives an entrepreneur a layer of protection, as well as numerous tax and other benefits.
One of the reasons why an accountant will recommend that a business owner sets up their corporate structure this way is in order to minimize and produce the taxes that a business owner has to pay. Since one of the main reasons why many business owners choose to go into business for themselves is to minimize their tax, this is a very important one. By going to see their Edmonton bookkeeping company and their accountant, business owners can come up with an effective tax strategy that can minimize the taxes that they have to pay. However, in order to do this it might be a requirement that they have to set up this parent corporation in their business. Business owners should be aware however if an accountant says that this is the best way to minimize taxes, they will save more than the cost of filing the year-end.
Other benefits that business owners can enjoy from utilizing a company is being able to reduce their risk, concentrating their assets, help them with succession planning, and create flexibility for growth and development. The best way to do this is if not nor is going to own more than one business or own assets such as the lings or stocks, to do so through the parent company and not their operating company. This way, it keeps all assets and the money they make those assets separately from their business, which helps keeps the business financials more accurate says Edmonton bookkeeping. However, but it also does is it keeps them legally separated so that if something happens to an entrepreneur’s business or if they sell it, that does not mean that they have to sell their assets as well.
The way that a parent corporation makes their money, is by utilizing profit shares, charging the operating company for management services, and for buying and selling buildings, real estate, stocks and bonds.
Business owners can understand the benefits of utilizing a parent corporation, and then discuss with their Edmonton bookkeeping company an accountant on whether this structure is going to be beneficial for them, so much that it would be worth paying for the increased bookkeeping and accounting charges.
Edmonton Bookkeeping | What Business Owners Should Know About Parent Companies
Entrepreneurs might be talking with their accountant as well as their Edmonton bookkeeping company on what the corporate structure is beneficial to them. Many accountants recommend a holding company which is also called a parent corporation or limited liability company because it will allow them the mechanism required to minimize taxes as well as many other benefits. However, business owners also need to be aware that this type of corporate structure takes a lot of additional work and cost associated with keeping them, and a business owner needs to be aware of this from the beginning so that they can do it accurately and avoid mistakes.
When a business owner owns a holding company and an operating company, Edmonton bookkeeping says that intercompany transactions are going to happen fairly regularly. These are transactions that happen between the holding and the operating company. Whether transferring money to pay a bill, pay the management fee, or even pay the business owner, any time a business owner moves money between corporations, they need to ensure that they are keeping an accurate record of it. That way, when their Edmonton bookkeeping company is updating their finances, the have all the information required to account for it accurately.
If an accurate record is not kept, bookkeeping errors that can occur might mean entering in deposits into the operating company that do not belong there, causing the operating company to report more income than they actually had, increasing the amount of taxes that they have to pay for example. Other errors that are common for Edmonton bookkeeping companies to make our Miss classifications, putting transactions in the operating company on they should be in the holding company, mixing up expenses between corporations, or misclassifying finances as shareholder loan amounts.
What happens if the bookkeeping is not accurate, is that they month-to-month financial statements are incorrect, which will lead to an entrepreneur making financial decisions that could put their business at risk. In addition to that, it means that the year-end financials are less likely to match, and not only do the year ends need to balance themselves, but they also need to balance with each other says Edmonton bookkeeping. This is even more difficult if both corporations do not share the same year-end date. Therefore it is very important that not nor keeps accurate records, and gets their Edmonton bookkeeping company to keep all of their finances up-to-date on a monthly basis.
By knowing all of these challenges ahead of time can help business owners ensure that they are doing what they need to do from the beginning of their business to ensure that there keeping accurate record so that they are ending up with the best financial statements possible the business that can help them make the decisions they need to increase their business and grow.