Business owners may hear from their accountant that they should set up their business so that they are in armís-length shareholder says Edmonton bookkeeping. But unless an entrepreneur understands what that is, or asks their accountant what that is, they may not truly understand why that is important or how it is beneficial. By learning what this is can help entrepreneurs understand what they can do to reduce taxes, and protect themselves and their assets.
The first thing that entrepreneurs should understand is what an armís-length shareholder is. This is what a business owner is called if they own a holding company that actually owns the shares to the operating company. Rather than owning the shares to the business themselves, they utilizing holding company, that corporation opens the shares and the stake in the company. This is called a holding company and also referred to as a corporation as well as a limited liability company.
The reason why an entrepreneur might want to structure their business this way is in order to minimize the taxes that they have to pay in their business, as well as protect their assets. Other secondary benefits is that this corporate structure will allow them to keep all of their assets including their business separate from each other, which makes it easy to sell their business, give their business to their children, gives them the flexibility to grow and develop their business.
It is also important to note that the holding company or parent corporation makes their money through a variety of ways such as charging the operating company a management fee for the work that an entrepreneur does to grow the business. They also can make a profit from shares, or by receiving dividends for stocks. And Edmonton bookkeeping says that this holding company can also make money by buying and selling assets such as real estate in buildings, stocks, and bonds, as well as patents and trademarks.
It is very beneficial for entrepreneurs to keep all of their assets separately from their operating business says Edmonton bookkeeping. The reason why, is so that if the business is at risk, from creditors, being sued, or even after an entrepreneur has decided to sell it, keeping assets separately from the business can ensure that not only are those assets protected but that not nor has more control over them allowing them to own them even if they decide to sell or close down their business.
By understanding the corporate structure, and one company should own which assets can help a business owner strategize with their Edmonton bookkeeping company and their accountant on how to structure their business, and set their company up to maximize all of the benefits. By learning this even before they set their business up can ensure that an entrepreneur is starting their business on the right foot, knowing what they are going to do, and what their corporate structure is going to look like in advance.
Edmonton Bookkeeping | What Is In Armís-length Shareholder
If an entrepreneur here is from their accountant or their Edmonton bookkeeping company that they should be in armís-length shareholder, they need to understand exactly what that means. This ultimately means that they are going to be able to save more taxes if they set up a holding company to hold their operating business then if they simply owned the shares themselves.
How this helps business owners minimize the taxes is very simple says Edmonton bookkeeping. Typically, when a not entrepreneurs business turns a profit, that profit is distributed in the form of dividends to all of the shareholders who then, in turn, must pay taxes on all of the amounts that they paid themselves. Since the personal tax rate in Alberta taxes out at 48%, the average Canadian pays 43%, that is almost half of all the dividends that an entrepreneur is paid will be taxed.
However, if the business owner has set up a holding company to hold the shares of the operating company, when that operating company turns a profit, instead of distributing the dividends to the shareholders, an entrepreneur can simply transfer all of the dividends to the corporations that are owned by the shareholders including themselves transferring their dividends to the holding company. Business owners can transfer dividends in between corporations completely tax-free as long as all the corporations are Canadian. Therefore, they can save the amount of taxes that they pay from 48% to zero.
While an entrepreneur has to pay taxes on the money that they take out of their corporations, by transferring it to their holding company, they can work with their accountant to time how and when to withdraw the money to minimize taxes. Or, Edmonton bookkeeping says that business owners may choose to simply invest that money straight from their operating company, and avoid paying taxes at all while increasing their wealth.
The amount of money that an entrepreneur can save by utilizing this corporate structure makes paying the additional amounts of money that they need to pay for filing two corporate year-endís worthwhile says Edmonton bookkeeping. However, the benefits of this corporate structure do not and with minimizing taxes.
By utilizing and operating company as well as a holding company, and transferring all of the assets to the holding company can actually protect those assets for the business owner. In case their business falls under hard times, and they are being sought out by creditors, or if there business gets sued, by transferring all assets and all profits to the holding company, will put them out of reach of creditors. This means that even if a business ownerís company can completely shut down, all of the assets that they had in the business and all of the prophets that they had will be protected and will continue to exist for the business owner. This is very beneficial especially if an entrepreneur is running a risky business, they should definitely utilize a parent corporation as their corporate structure.