April 2004 Issue

FDH Newsletter |

Article 1: Oakville Office Grand Opening

Article 2: Keeping the Fruits of Your Labour – Asset Protection Strategies

Article 3: Advisory Groups – How They Can Benefit Your Business

FDH News & Legal Tidbits

Oakville Office Grand Opening

Thursday, March 25th marked the official opening of our new Oakville Office. We were thrilled that so many of our clients and acquaintances were able to join us in the festivities and it appeared that a good time was had by all.

On hand for the event was local dignitary, Councillor Janice Wright, who presented words of congratulations on behalf of the Town of Oakville and the Regional Municipality of Halton. Councillor Wright then assisted Miles Feltmate and Brian Heagle, two of our Partners, with the official ribbon cutting.

As part of the official opening of our Oakville Office, those attending were asked to “Call Us Names” by casting their ballot for their choice of name for each of the 3 boardrooms. We are pleased to announce that the Oakville Office meeting rooms will now be known as The Winston Room, The Chambers Room and The Bench Room. Thanks to all of you who took the time to vote and help us with this decision.

Keeping the Fruits of Your Labour – Asset Protection Strategies

By Ron Weston

There is an old expression, “those who fail to plan, plan to fail”. Sage advice. From a legal point of view, however, proper planning should include planning for failure. In a business context this simply translates to planning and structuring your business affairs so that certain assets are not available to satisfy the claims of the creditors of the business.

While there are numerous legal devices to shelter assets, the most frequently employed are described below:

1. Incorporation

The fundamental principle in corporate law is that a corporation is a distinct entity from its shareholders. Therefore, if persons starting a business have assets, it is always prudent to incorporate a company to shield their personal assets from the claims of business creditors. Likewise, if a person owns shares in a successful business and wishes to acquire new assets or another business, the acquisition ought to be completed by a separate corporation. These newly acquired assets are then not available in the future to the creditors of that other business.

The most common example of this type of strategy occurs when an operating company wants to acquire real estate to house its business activities. The transaction should be structured so that a new corporation, owned by the principals of the operating company, acquires the real estate. This ensures that the creditors of the operating corporation never have available to them the real estate to satisfy any claims.

2. Holding Corporations

A “holding corporation” can be described as a corporation that does not engage in active business but merely holds shares in an operating company or holds real estate from which the operating company carries on its business.

Where a holding corporation owns shares in an operating corporation, dividends (distributing earnings or retained earnings) can generally be declared and paid to the holding corporation without any resulting tax liability to the holding corporation. Tax liability results only when those dividends are ultimately distributed to an individual tax payer either by way of dividend, bonus or salary. Once the dividend (usually in the form of cash) is received by the holding corporation then that property becomes property of the holding corporation and no longer the property of the operating corporation subject to claim by the operating corporation’s creditors.

If the operating corporation subsequently requires that cash for working capital purposes, the monies can be advanced to the operating company by way of loan and secured by way of a general security agreement in favour of the holding corporation. The holding corporation then becomes a secured creditor of the operating company, with priority over unsecured or subsequent secured creditors of the business.

3. Trusts

At some point in the gradual process of accumulating wealth, a person may reach a point where their assets exceed the level reasonably required to finance their lifestyle. At such point, it is wise to consider whether surplus assets should be transferred, or a corporation owned by such person be restructured so that beneficial ownership of those assets, together with the future growth of those assets, reside with others, typically one’s spouse and children. The vehicle most commonly used for such a transfer is the family trust. Family trusts are usually set up so that persons with wealth divest themselves of certain property but act as the trustee with full, unfettered discretion respecting the administration of the trust and the determination of who receives the direct benefits thereunder.

If the trustee encounters financial misfortune after establishing the trust, the assets in the trust are not available to satisfy the claims of his or her creditors as the trust property does not belong to the trustee. In addition, as long as the property remains in the trust, it is free from the claims of the beneficiaries’ creditors.

The use of family trusts can form part of an estate freeze, the purpose of which is to avoid or reduce capital gains on the increased value of equity shares over time in the succession of businesses from one generation to the next.

Failing to properly plan your affairs can result in expensive and unanticipated consequences. Proper planning should be done in consultation with your professional advisors.

Advisory Groups – How They Can Benefit Your Business

By Brian D.B. Heagle

If some of the largest companies in the world have them, why don’t you? Many entrepreneurs ignore or discount the value to their business of a formal advisory group. Perhaps there is a reluctance to ask outsiders for help, or the effort to create and maintain a group prevents an owner from taking the first steps.

On closer examination, however, an advisory group can be one of your greatest assets and most cost-efficient methods for long-term success.

Whether your business is operated as a corporation, partnership or sole proprietorship, it will need to use and rely upon professional advisors from time to time. These important ongoing relationships may be with accountants, lawyers, insurance agents, financial advisors or other experts. In the ordinary course, you pay for their professional services. These same trusted individuals may also be appropriate for a separate advisory board. Consider this: if such individuals accept your invitation to join, you will have regular access to their particular skills, experiences and insights, combined with an already intimate knowledge of you and your business, often for the bargain price of a breakfast or lunch (or some other relatively small form of compensation).

In addition to people with whom you have close business relationships, there are other natural candidates. This list can include industry and community leaders, retired executives, deep-thinking personal friends or cutting-edge colleagues. And don’t forget to look in your own backyard: you may want to include a family member or top employee, particularly if that person is a part of your succession plan. The primary goal is to develop a core group of qualified supporters from various backgrounds in which you may have little direct experience. As well, they must be available to meet, on a reasonable “as-needed” basis, in a mutually convenient location or manner (including e-mail) where ideas can be exchanged and discussed.

The role of the advisors can be as broad or as narrow as you require. The group may provide you with the chance to analyze certain strategies, obtain opinions about how to deal with troublesome situations or disputes, or you can simply listen to their experiences in planning business and personal affairs.

Most importantly, once the task of setting up the advisory board is completed, you must diligently organize each gathering, formal or informal, ensure that an agenda is circulated in advance, and carefully monitor the progress of each meeting and obtain feedback from group members. You may also need to change or refine the make-up of your handpicked group, on occasion, to keep things fresh or to replace inactive participants.

Another advantage of an advisory group is the networking opportunities that are created. Bringing together individuals on a regular basis may generate and develop new financial opportunities and unexpected introductions to new clients, suppliers and business associates – or lead you to their key advisors. In fact, an advisory board initially created for your own purposes, may evolve into a workshop or think-tank for everyone’s benefit. Once a level of trust is established, the parties will seek to discuss, and resolve, their own particular problems while sharing the secrets of their success.

It can take several attempts to create an effective working group. Nevertheless, in an age when it is increasingly difficult for private companies to attract directors to their Boards (due, in large part, to the burden of statutory liabilities), the less imposing forum of an advisory board represents a very practical and appealing option. If properly managed, the knowledge and experience of a committed group will help round out your management team. It will also enhance the prospects for profit and growth in both your business and yourself.

FDH News

We are pleased to welcome four new lawyers to our team:
- Peter Welsh is associated with us as Corporate/Commercial counsel. Peter has practiced for a number of years in downtown Toronto and brings with him a wealth of knowledge and experience. Peter is a member of the Oakville Chamber of Commerce;
- Markus Cohen, Q.C. LL.M. is now associated with us as Trade-Mark and Franchise Counsel. Markus has practiced in these areas for more than 30 years and is a member of the Canadian Franchise Association and the International Trademark Association;
- Arlene D. Wolfe joins us after having spent more than 20 years practicing corporate/ commercial law in downtown Toronto;
- Dan Caldarone, formerly a partner of Aird & Berlis LLP in Toronto, will be working with our Corporate/Commercial Law Group and will be based in our Oakville office.
James Tuck was re-elected to the Board of Directors of Burlington’s Sound of Music Festival for 2004. The Sound of Music Festival is an annual free outdoor summer music festival held in Burlington and continues as one of Ontario’s top 50 festivals.
In January 2004, Debi Sutin spoke on “Selling a Franchise” at the Ontario Bar Association’s 2004 Institute Conference entitled “Franchising Soup to Nuts”.
Fulvio Delibato was recently appointed as a Trustee on the Burlington Arts Centre Foundation Board. The goal of the Foundation is to establish and maintain a permanent source of funding for the Centre.
In April 2004, Brian Heagle will become a director of the YMCA of Hamilton/ Burlington which operates summer camps, swimming lessons, employment and alternative educational resource centres, child care providers, leadership development programs, fitness centres and other community programs.
On April 28, 2004, Debi Sutin will speak on “Unique Leasing Issues Facing Franchisors and Franchisees” at the 2004 Annual Legal Forum hosted by the Canadian Franchise Association.
Brian Heagle was re-elected as a director and an officer of Performing Arts Burlington, which is a volunteer group devoted to the promotion of local cultural activities and to bringing a performing arts centre to the City.
January 2004 marked the 1-year anniversary of the Hall of Art maintained in our Burlington Office. The Hall of Art was established in order to provide exhibition space for local artists to showcase their talent. Lois Harry of the Burlington Fine Arts Association expressed her appreciation to Feltmate Delibato Heagle LLP: “For the artists themselves it has been a great experience, and for quite a number, sales have resulted”. Lois also expressed particular thanks to Susan McKenna, receptionist in the Burlington office, for helping to spearhead the project and for assisting the artists in displaying their work.
We will be offering seminars throughout the year on various legal topics of interest. As the topics and the dates are confirmed, a listing will be provided in this column and in the Upcoming Events section of our website at www.fdhlawyers.com. If you wish to be placed on our invitation list, please call Jenee Weessies at 905-829-3200 or email her at jweessies@fdhlawyers.com.