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Small Business Resources
Hi, I am looking to start a small seasonal construction company for next year, and I'm doing a lot of research right now. We are just about to register and incorporate, but I'm unclear as to what would be the best way to setup the corporation. The company will be a 4 way even split amongst family members. Should all four be directors of the corporation? And will this affect everyones entitlement to Employment Insurance in the off season? – RobertHi Robert, Thanks for the email and congratulations on taking the plunge. Your question actually has a couple of elements to it: the practical and the legal. Issues of directorship and EI are really better asked of a lawyer as that is the domain of the law. You should also ask the lawyer about whether incorporation is necessarily the best solution. I am not giving legal advice here, but there are a few practical distinctions among different structures. For instance, are all 4 members of the family going to be active participants in the business or are some of them just investors? If the latter, you might consider a limited partnership. The reasons a corporation might be useful, at your stage, are: limiting your liability and achieving some tax benefits if leaving money in the business. The downside is that corporations are more expensive to set up and generally experience a bigger payment to accountants because of the complexity of annual tax filings. One other VERY important matter to consider is dispute resolution. Family businesses can be wonderfully rewarding, but they are also fraught with danger. By having 4 equal shareholders, you create the ability for a stalemate. If 2 think one way and 2 think another, no decision gets made. This can then lead to family tension. Therefore, while it can be an uncomfortable conversation, it might be worthwhile to have someone - either the one with the most money invested or the one with the most active participation - hold slightly greater shares. You can agree that you will split profits as if the shares are equal, but somebody holds final say in the event of a dispute. There are other dispute resolution mechanisms that your lawyer can discuss and include in your partnership/shareholders agreement. (Oh, by the way, whether you are partners or shareholders, I strongly recommend that you create such an agreement.) One other point that flows from your description, although you didn't specifically ask, is that it is critical that you make your roles clear. Clarity and accountability will increase your chances of success. In the absence of that clarity, it is easy for you to begin to blame each other and duck responsibility. However, if the roles are clear, it is much easier to identify challenges and create accountability. It also allows each of you to fully enjoy your positions and the company. And after all, that's what it is all about, isn't it? Warren
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