Corporate Structuring for Indigenous Businesses – How DGW Law Can Help
DGW Law – Corporate Law Group
One of our primary areas of expertise at DGW Law is creating, reviewing and maintaining business structures for First Nation, Métis and Inuit clients. In the Aboriginal law context, several complexities arise even when using standard business entities like companies and partnerships. Some of these complexities present opportunities, such as tax advantages, while others create uncertainty that specific techniques have been developed to address. For First Nations in particular, there are specialized legal issues related to their capacity to hold different kinds of property, including shares in a company, and their tax treatment. As an example, a key factor in choosing a tax-efficient structure for First Nations and First Nation-owned entities is whether income will be generated on or off reserve.
Why consider restructuring your business?
Well-structured businesses take advantage of various legal tools available to:
- obtain protection from liability (especially important where a relatively small business may have high liability, such as a gas station);
- reduce taxes;
- provide for transparent and effective governance of a Nation’s economic development;
- increase the independence of Nation-owned businesses;
- compartmentalize business risk, so that a failing business will not bring down other successful ones.
It is often easiest to optimize these advantages when designing a business structure from scratch, but improvements for existing businesses can still be found through re-structuring.
What are some challenges of corporate structuring?
One challenge is that the ability to make certain changes may be limited when a business is already in operation. Sometimes the cost or tax consequences of certain transfers can stand in the way of implementing a more efficient structure.
Other challenges include the simple financial costs of legal and accounting advice and the services of other consultants. The investment of time by staff and leadership is another cost that should be kept in mind. However, when there is a good basis for re-structuring, these costs should be far exceeded by longer-term efficiencies and savings.
Do I really need a lawyer to set up my companies?
While hiring a lawyer is not mandatory, there are several good reasons to obtain the help of an experienced and knowledgeable lawyer at all stages of the process: before, during and after implementation of a business structure.
Before: The best time to seek legal advice on a business structure is when you are considering starting a new business. This allows the greatest freedom to tailor the business structure to the particular needs and aspirations of your community. Taking the time to design a clean, efficient business structure can save time and money in the long run and can help minimize internal disputes. Rushed or poorly designed structures can squander tax advantages and lead to costly changes later, or even a loss of liability protection.
During: Beyond the design of a structure, the process of creating it can involve many moving parts and small details. While the act of incorporating a company or registering a partnership is accomplished by the relatively simple filing of a few documents, the Corporate Registry does not check that the entity you’ve created is right for your situation. Details that are missed often don’t show themselves until further down the road when things go wrong and they are more expensive to fix. It is also important to keep in mind that, although the internet is a great source of information and there are many forms and precedents out there, they won’t necessarily fit with the particular province in which you intend to operate.
After: The longest phase of the business structuring process is, of course, using it once it is created, and so it is important that a client understands how the structure works and how best to make use of its features. Even good structures that are not used properly can lead to loss of liability protection or loss of tax advantages. There are also ongoing reporting and filing obligations that need to be met in order to keep business entities in good standing, and, over time, circumstances will also change and the structure may need to adapt.
So, what’s involved?
The process starts with a consultation to identify the goals and intentions of your community. Next, we gather information about any existing business entities and assets and then design a structure to achieve those goals. Some typical steps include:
- registering or incorporating new entities and dissolving old ones;
- revising constating documents such as articles, bylaws, constitutions, and shareholders’ and partnership agreements;
- revising internal governance structures and policies;
- transferring assets between entities; and
- negotiating agreements with partners and third parties.
After due diligence and fine-tuning of the drafts are complete, the documents are signed and registered, transfers are completed and any necessary training is provided. And that’s it! You’re in business!