Wednesday, 23 May 2012

Are You a Small Business Owner? Have You Secured Your Shareholder Loans to Your Company?

[This week's entry discusses the laws of the Province of Ontario. For readers in other jurisdictions, please consult with a local lawyer]

This week we touch on an entirely different area for small business owners. Many of my clients are small business owners, either as a part time or full time endeavor. We have all heard about bank loans and collateral for the loans. If a bank takes collateral for a loan, what this means is that in the event that you do not pay your loan obligations as they become due, the bank has the right to seize and sell that collateral to pay itself back for the unpaid portion of the loan.

When small business owners first start their business and they incorporate a company to carry on that business, frequently they put their own personal funds into the company to allow it to operate. This can happen at any time. If you are a shareholder in your own company and the advance is documented properly, these advances then become loans owed by your company to you as a shareholder or shareholder loans.

Unfortunately, if a business starts to fail, often the owner of the business or shareholder, wants to take out money to repay themselves for past shareholder advances. If this occurs at a time when the business has creditors which aren't being paid, legislation in Ontario may apply and give rise to an action by a creditor to have those moneys repaid back to the company by you.

When you put money into your company you should do so on the basis that the advances are loans and you should make those loans secured loans, meaning, there is collateral for the loan to ensure that the loan is paid back to you. At the inception of your business or as soon as possible, you should enter into an agreement with your company to give you a lien against the assets of the company. This lien must be registered against the company. In Ontario, the legislation governing the granting of security in personal property is called the Personal Property Security Act. Ideally, this arrangement should be in place before you ever advance money to your company.

If completed properly, securing your personal loans to your company is a legitimate and legal method to secure your investment which will rank your investment ahead of the company’s unsecured creditors if the business gets into difficulty.

For more information on how to secure your shareholder advances to your company, please feel free to contact me.

Tuesday, 15 May 2012

Most Canadians do not have a Will-Do You?

A recent article in the National Post discussed a recent poll that found a majority of Canadians do not have a will. In my practice, the number of clients without a will is far higher, close to 95%. Why is this so? Perhaps people feel like preparing a will is too expensive. Perhaps it is because most people do not want to turn their minds to the possibility of dying and leaving loved ones behind. There are always reasons but the need for having a Will prepared is obvious. Our office normally charges approximately $250 plus HST for a simple Will.

It is also important that in addition to a Will, you should have a continuing power of attorney for property and a continuing power of attorney for health care prepared as well. I generally charge $75 plus HST for each type of continuing power of attorney.

What is a continuing power of attorney for property? It is a document to appoint a person of your choice to make decisions about your property and manage your finances on your behalf. This may include doing things such as signing documents for you, paying your bills, or even selling your home. This power of attorney will allow the person you appoint to manage your financial affairs even if you become mentally incapable. The person you appoint is called your “attorney for property.”

What is a continuing power of attorney for health care?  It is a document to appoint a person of your choice  to make decisions about your personal care for you if you become mentally incapable of doing so. Decisions about your personal care involve things such as where you live, what you eat and the kind of medical treatment you receive. The person you appoint is called your “attorney for personal care”.

While many people understand the obvious need for a Will, the need for each of the power of attorney documents is less obvious. A recent example is instructive. A gentlemen contacted me about the health care power of attorney. Let's call him Joe. He and his same sex spouse were legally married recently and after an accident, the spouse was in hospital and was not able to give instructions to his treating physician about his health care. When Joe tried to give instructions to his spouse's treating physician, the doctor asked Joe if he had a power of attorney for health care. When he told the doctor that his spouse did not have one in place, the doctor refused to take instructions from Joe about his spouse's health care and instead took instructions from Joe's father in law instead. This completely unnerved Joe and once his spouse was out of hospital (and fully recovered) they immediately had Wills and powers of attorney prepared. 

While this story may be a rare exception, it points to the importance of having your affairs in order before you need it. The process for preparing a Will and powers of attorney is relatively easy and relatively inexpensive for the peace of mind it will bring you and your loved ones. 

If you have any questions about Wills or powers of attorney, please feel free to contact me or check out my profile on Linkedin