Business Ideas

Archive for August, 2009

Congratulations Mr. Mrs. Smith! Its A Healthy Babycorporation

This baby may not have your eyes or nose but in many respects it is just like any other human being. The baby is given a name and starts off quite small but before you know it your little corporation has grown right before your eyes into a mature adult and a responsible contributing member of society. In a legal sense this new member of society is considered a person and a separate entity from its shareholders. It can own property and carry on a business in addition to enjoying certain rights and even being able to incur liabilities.

In my last instalment the major issues relating to partnerships as well as the importance and benefit of a well drafted partnership agreement were briefly canvassed. In this chapter we will delve into similar issues regarding corporations. A good starting point would be to answer the question why incorporate? What is the point of creating this new entity we call a corporation?

The largest and most obvious benefit of incorporating a business is that the shareholders or owners greatly limit their liability. When running a business as a sole proprietorship or a partnership the owners are entirely liable for all claims against the business. Barring certain specific situations a shareholder of a corporation risks losing only as much as was invested whether it is in the form of money past services or property. The main exception to this is when the corporate veil is pierced. This is a topic that is beyond the scope of the current article but as a starting point it is vital to recognize that corporate responsibility is an issue that has made its way to the forefront of societys expectations especially in the wake of the Enron fiasco and as such cannot be ignored.

Corporations can sue and be sued in their own names. Generally speaking and subject to personal guarantees this limits personal claims made against the brains of the operation you. They also have the potential to live indefinitely a claim not easily made by most entities. Another benefit is the ability to incorporate provincially or federally. A federally incorporated company can carry on business in every province and so depending on your business plan or preferences the opportunity to grow expand and reach various markets can be simplified by such a structure.

Corporations are separate tax payers from their shareholders. The taxation of corporations as well as the type and extent of tax incentives that can apply depends in part on the type of corporation that is created. For instance for a certain amount of active business income in a particular tax year a Canadiancontrolled private corporation CCPC in Ontario is only taxed at roughly onehalf the regular rate. Incorporation allows for a number of potential tax savings and as such these are considerations that should be carefully explored.

When a business is incorporated bylaws must be carefully drafted. The issues that can be dealt with in the bylaws which will form part of the articles of incorporation are virtually limitless. Some of the more generic ones are as follows:

Shareholder rights

Voting structures regarding decisions made by the shareholders or directors

Limitations on sales

Meetings

Resolutions and

Other matters relating to Directors and Officers.

Another great benefit of incorporation is the varying and creative solutions that can be developed regarding the setup and inner workings of the company. From the outset the owners shareholders can make decisions regarding classes of shares their differing rights as well as privileges and restrictions that attach to those separate classes. This can include such topics as voting amalgamations revisiting the set up of the corporation or even selling the corporations assets. Aside from a few particular limitations any number of specifications regarding share classes can be arranged. Incorporation also gives the owners the ability to decide if or how the securities of the corporation will be distributed as well as the mechanism that must be followed to implement such distributions.

The freedom and flexibility that incorporation provides makes it increasingly understandable why so many businesses choose that route. However once such a route is chosen someone must be prepared to deal with the relevant issues both the practical management of the business and the backstage technical requirements. How many directors are required by law? What are the duties and responsibilities of those directors? Which responsibilities can be delegated and which cannot? Furthermore how will the transaction of business work behind the scenes? How does a shareholder ensure their rights are protected? What freedoms are there to buy in or out of the corporation? Is there a shotgun clause? Has a comprehensive shareholders agreement been properly drafted for this corporation to deal with these and many other issues? If not that should be ones foremost concern.

Other issues that warrant attention include the nature and details of the different kinds of dividends purchase or redemption of shares share capitalization potential winding up of the company and the tax consequences/considerations of these and every other matter that has been raised in this article.

By no means has this been a comprehensive review of all the issues you must turn your mind to when incorporating a business nor has it covered all of the requirements that must be fulfilled when you have already incorporated. There are mandatory filing requirements notices that must be sent and fees that must be paid just to name a few. Moreover to properly set up the corporation in terms of the bylaws resolutions and shareholder agreements legal advice would be ideal for any business person regardless of your degree of experience so as to properly address all the issues that are of concern for your particular business. Shareholder agreements can range from very simple to dreadfully detailed and complicated. Furthermore when faced with so many possibilities and arrangements some external guidance could only help to achieve your goals and specific wishes that much more effectively.

With the proper upbringing your corporation can grow into a major success. Being a parent is always challenging and seeking assistance with it can only work to the benefit of you and your baby. Wishing you the very best of luck during this exciting time in your life.

About the writer:  Jordan S. Halpern is a lawyer with BrazeauSeller.LLP. He practices in the areas of corporate/commercial transactions as well as commercial and residential real estate.

Confession Of A Downtown Credit Counselor

A little over 5 years ago I remember making a trip out to Brooklyn Polytech Institute to offer faculty and staff there a free credit and debt counseling seminar. At that time I was representing a public nonprofit consumer credit counseling agency I cofounded back in 1996 and these free seminars were a significant part of maintaining compliance with the IRS. They were free to all attendees and free to the organization agency or company hosting. Back in 02 and 03 consumer credit counseling was under increased scrutiny and growing suspicion due in large part to the bankruptcy filing of Ameridebt the nations largest consumer credit counseling agency. Ameridebt had been caught mismanaging funds and misrepresenting themselves to the public calling all non profit credit counseling into question. As time went on more agencies were coming under investigation for funneling profits to forprofit entities and misrepresenting their services to the public. As a 34yr old still holding on to his last shreds of idealism I remember thinking aloud on that September day I took the R train out to Brooklyn that nothing was sacred anymore nothing.

As a small non profit who couldnt afford mass advertising on TV or radio we had availed ourselves to speaking engagements and word of mouth referrals as far back as the late 1990s as our primary source of advertising. The seminar route was nothing new to us. Since the late nineties we had spoken for free to Church groups and urban development leagues throughout the five boroughs. And by 2002 and 2003 we had extended ourselves to various EAP programs throughout the city of New York in hopes of building a client base and possibly educating a few people as to the inherent dangers of credit card debt predatory lending and how to properly manage money for unconventional real estate purchases.

As usual I was armed with an arsenal of educational information from the American Center for Credit Information HUD and Fannie Mae. The load included several little workbooks designed to assist potential first time homebuyers in decision making. I think one title Knowing When the Time is Right for You read like a teenage dating guide. The others like the Basics of Budgeting and Money in Motion also had their distinctly perverse dummied up definitions of fundamental money terminology. But thats not to say they were devoid of any worthy educational merit. I knew however drawing on previous experience that the majority if not all of these books would never see the light of day. What most people turned up to these seminars for was to learn the secrets of credit repair using the formletter dispute format. They also came to heat about the legally enforceable statute of limitation on bad debts or advice on expunging an unpaid judgment. Based on free follow up telephone counseling Id extend to seminar attendees Im confident in saying that money management technique or the consequences of misunderstanding a balloon payment or adjustable rate sub prime loan were very low on the totem pole when it came to the substance of these seminars.

To me this seminar would be yet another bad example that preaching the dangers of predatory lending practices and subprime loans was a complete and utter waste of time. All people wanted to hear about was how to navigate the shortcomings in the credit scoring and reporting system so they too could get a mortgage. After all everybody was doing it. Mortgages were the latest fad or addiction depending how one looked at them. Personally though I was growing increasingly pissed off over the latest hypocrisy surrounding the credit and debt counseling industry where as our beneficiaries commercial banks and credit card companies stipulated that our funding would be strictly contingent on our educational merit to the communities in which we serve and not on how much money we were returning to them through our consolidation programs. This declaration still stands out as one of the most outstanding lies I have ever heard in my life as all credit counseling and credit education was now done over the telephone and the internet. Seminars had been replaced by chat rooms and streaming video. And counseling now consisted of one 20 minute conversation with a certified credit counselor over the telephone who was more interested in enrolling you into a debt consolidation plan than providing any worthy information pertaining to budgeting and money management.

My agencys face to face method of counseling and education were dead and gone. Banks and credit card companies are just as reliable as any profit driven company when it comes to putting up the facade of social responsibility. Its just good business I suppose. They really didnt want us out there standing on ceremony preaching the inherent dangers of their products too vociferously. And they didnt want us out in the community blatantly undermining the subprime marketplace because of the money to be made there. After all as one beleaguered mortgage broker put it to me after I had warned a contingent of 300 first time homebuyers about obtaining subprime loans who are you to trash these peoples dreams. Good question I thought who was I?

The best I could hope to gain on this particular day in Brooklyn was a letter on BPI letterhead from the Director of the EAP program verifying my appearance on the spot. Typically Id wait months for such a letter and sometimes they never came at all. But we still needed to show up to keep the powers that be off our backs. It also meant yet another day away from my office not addressing the backlog of debt management proposals I needed to send to numerous credit card companies on behalf of an ever growing number of ordinary people who had fallen victim to the old American virtue of buy now and pay later. They were ordinary people who were extended far too much credit given their annual incomes. Ordinary people who never really learned the basics of budgeting. Ordinary people who always believed that next year will be my break out year. They were ordinary people who now had to pay up.

It was also around this time 5 years ago where I first starting hearing the term subprime mortgage on a fairly regular basis. Id heard it in passing years before but the term was reserved for individuals whose credit scores were too far gone for anything conventional in the mortgage market. Previously subprime was synonymous with hardmoney loans. Suddenly it had a newer significance as the subprime market now backed by more conventional deposit institutions was bustling in full swing driving some mortgage specialists and lenders into a frenzy with the sea of money to be made off of extending these difficult loans to individuals with already compromised credit. I also remember thinking to myself in no uncertain terms one day this will cause some real problems.

On numerous occasions far too many to recall Id had the conversation with my dedicated but tired business partner about the day when everyone would have to abruptly stop and entirely reevaluate their ideals attitudes and most importantly behavior when it came to borrowing money. Our conversations often left us both in complete disbelief at the shortsightedness of not just of the banking community but also of the human condition itself. Still wrapped in the hope that one day justice would prevail wed remark at great length about the thoughtlessness that overtook people when the chance to make a quick buck came into play. It appeared so academic to us that sooner or later everyone would feel a swift and severe backlash from the fury of subprime loans and yet again it would be left to the innocent to clean up the mess. To what extent the average everyday American would be footing the bill on this we hadnt a clue. We suspected however it would be far worse than anything we had witnessed in previous years.

Something remotely similar did come to mind with the demise of the dotcom industry in the late nineties that culminated with the market crash back in 01. Business in the credit and debt counseling industry did experience a sharp increase in the fall of 01 and winter of 02 as it seemed thousands of people lost jobs in New York City seemingly overnight. Suddenly a whole new type of debtor appeared. One who had never been in such a position where credit cards were now used as a means of survival rather than a convenient type of payment alternative. A number of people we tried to assist back then with debt management plans and monthly budgets defaulted on their repayment plans. Many declared insolvency with a chapter 7 bankruptcy as entire debts could be expunged at that time. And par usual the losses were simply passed on down to the timely cardholder in the form of a fee or a rate increase of some sort.

Our premature prediction of the subprime meltdown however presented an entirely different kind of crisis both in scope and kind. This would be unprecedented financial devastation and upheaval on a large scale basis. Markets would be vulnerable to collapse around the globe. Financial institutions even some of the most reputable and storied would disintegrate in an instant. Jobs would be lost. Retirement packages would evaporate. Peoples entire life savings would go right down the tubes. Full on financial Armageddon would be at hand. Back in 03 and 04 I was accused more than once of being overdramatic.

I started to become somewhat of a zealot on the subject and often had many of my family members friends and peers at odds with me. Many of them would patiently watch me go off on one of my animated tangents about how one day we would all have to face this beast and it wasnt going to be pretty Id stammer. In retrospect I believe that many of these little rants or furies were also rooted in the resentment I harbored towards the credit and debt counseling industry. Its true. I hated my own. By 2004 many of the nations largest consumer credit counseling agencies had their nonprofit status revoked for mismanagement of their trust accounts and their ties to for profit businesses. They had succeeded brilliantly in destroying the distinction and legitimacy I had worked so hard to achieve and refine. I had in fact established the only New York State Licensed COA Accredited public non profit ever. I worked my ass off for 8 years to achieve this merit and I never cut corners took favors or pocketed a single dime that didnt belong to me. In short I guess I was pissed because the same greed had now penetrated my own industry exposing the hypocrisy. But that still didnt mean I was wrong about what was to come. A little insane and consumed yes. But wrong?

I started to watch the stock markets and lending rate fluctuations in an obsessive manner thinking that the dominos were about to start to falling any day now. At some point I began losing weight and sleep as the banks continued with their funding cuts and my job was now in eminent peril. If we didnt have a proposed merger in the works with a larger independent agency Id have been in receivership myself back in 2004. Just getting a non profit credit counseling agency up to speck can set one back tens if not hundreds of thousands. No mind I figured our services would be in such demand once the rash of foreclosures came about benefactors would be throwing money at us in order to assist in maintaining economic equilibrium.

But the subprime lending brigade marched on seeming to only to gain momentum throughout 2005 and part of 06 as well. Couldnt anyone else see this for what it was? Id hear stories from friends about mortgage brokers whod advise them to walk on all of their credit card debt and use the money for repayment as a down payment on a piece of property. Sod your cards with FUSA and MBNA I can still get you a loan in spite of your paying history one of my friends was told. And the initial rate could be refinanced in 1224 months the pitch went on to say. At least youll own something that you can sell. How American I thought.

For whatever reason maybe the impending doom of the inevitable crash or my own personal insolvency I started feeling a sense of urgency with my work especially when it came to educating the public. I took any venue provided to voice my hostility towards what was happening. Even students at my understanding and managing your credit and debt class at the learning annex didnt escape my rants. Funding for the agency continued to decline considerably until it was almost abolished entirely save for a few loyal but insignificant patrons In part this was due to maximizing quarterly returns for the banks that funded us but mostly I believe it was about snuffing out any voice that was out there preaching the evils of subprime lending. The banks loved the fact that we used to assist them in collection efforts acting as a friendly alternative to traditional collection practices offering budgeting and sound financial advice but they clearly didnt want us out there warning people about the dangers their products.

Sadly though for me as 2005 began to wane and merger talks with my agency were disintegrating I began to feel my own mortality as a credit counselor more than ever. Funding had been stripped to basic operating expenses leaving little or no room for salary. The work I once deemed so esteem able and necessary was worth literally nothing to anyone. Here I was on the verge of my 37 birthday looking back on my last 9 years of work with nothing to show personally. No wife and kids. Id sacrificed that life for my cause years before. No money stashed away as everything I ever made went back into the agency. I was as broke as many of my clients were. And no real transferable job skills. The last two years searching for work has been an exercise in futility as far as work in commercial banking or finance.

Ive tried to salvage some good I may have done. And I suppose on some level I did. Every now and then Id get a card from a former client or seminar attendee or student who had my class telling me that something I said had helped them in getting their personal finances back in order. But I cant shake that nagging feeling that I was never really allowed enough time or opportunity to vocalize my opinions and coordinate real change in the form of appropriate regulation. For if I had perhaps none of this imminent peril would be upon us. But then again who was I too think I could have made any real difference anyway. I was just a kid playing businessman in lower Manhattan. At my agency wed never had any real money behind us but we were constantly challenging some of the biggest banks in the world to a public fistfight. Wed go on record with anyone whod listen to us about the impending disaster. In retrospect I was screaming at the top of my lungs for people to take notice of the sub prime credit catastrophe that would one day render us financially impotent but no one really wanted to hear that in a time of pseudoprosperity and growth. Get back in your box creditman. Well call if we need you to clean up the mess. Only problem now is the mess is at hand and Im long gone.

About the writer:  Jim Steele is still an active board member of CACC Credit Advocate Counseling Corp. the non profit credit counseling agency he cofounded in 1996. He retired from his position as Vice President in 2006. A graduate from the University of Michigan Ann Arbor Jim still lives and works in New York City

Changes To Free Fuel Benefit Tax In The 2008-09 Tax Year: – Private Fuel Benefit Tax Will Rise From April 6th

The tax is levied on the fuel. There is no tax on fuel cards.

Fuel cards are an effective tool for controlling CO2 and business mileage costs.

Fuel duty is due to increase by 2p per litre in October having been postponed in the 2008 budget.

From 6th April 2008 HMRC will raise the nominal figure used for calculating benefitin kind tax on fuel provided for personal motoring from 14400 to 16900. This is the first time the amount has been increased since its introduction in 2003. During this time retail fuel prices have increased by 34. Driver by driver assessments Private fuel benefit liability has to be calculated on a driverbydriver basis as each decision depends on the driver’s annual private mileage their marginal rate of tax their car’s CO2 emissions its actual fuel consumption and finally the price of fuel.

Fuel prices are due to rise by 2p per litre in October 2008 when duty on petrol and diesel increases. If drivers prefer to give up private fuel benefit they can do so at any time during the tax year only having to pay BIK tax for the portion of the year in which they received the benefit. To ensure the effective management of fuel consumption and to support CO2 reporting it is essential that any driver opting out of the free fuel benefit continues to use a fuel card. Used in conjunction with the Arval Mileage Capture System the fuel card is also the easiest and most cost effective way to manage business / private mileage splits and reimbursement.

Note that the percentage figure for calculating company car BIK which also applies to fuel benefit increases by 1 for vehicles registered after 6th April 2008. This follows the lowering of the start point of the CO2 based BIK scale to 120g/km. Additionally from the 5th April 2008 the basic rate of income tax will drop to 20 from 22.

In 200809 therefore the higher rate taxpayer in the above example would pay 210 more tax on their private fuel benefit or 277 if the car is registered after 6th April. In 200708 a driver on the higher 40 income tax rate needed to cover at least 12140 personal miles to make the fuel perk worthwhile based on the Mondeo’s official combined fuel consumption of 47mpg and assuming the driver paid an average cost of 1.03 per litre. The breakeven point in the same car during the 200809 tax year will rise to 13100 miles assuming that the price of diesel fuel averages 1.12 per litre.

A new BIK band 10 for petrol and 13 for diesel will be introduced on April 6th for cars emitting less than 120g/km of CO2. The band applies only to cars registered after 6th April 2008. A driver of such a vehicle will pay substantially less tax on the free fuel benefit than a driver of an identical vehicle registered before 6th April despite the increase in the calculation figure to 16900. The employer would also save proportionally on National Insurance contributions.

In 200708 a driver on the higher 40 income tax rate driving a BMW 118d needed to cover at least 13906 personal miles to make the fuel benefit worthwhile based on the BMW’s official combined fuel consumption of 62.8 mpg and assuming the driver paid an average cost of 1.03 per litre. The breakeven point in the same model registered during the 200809 tax year will fall to 10839 miles assuming that the price of diesel fuel averages 1.12 per litre.

About the writer:  Arval specialises in fuel cards and contract hire.