January 11, 2013 12:43
by Brenda Stefanson, PAg
Regional Farm Business Management Specialist
Over the years, groups of farmers have worked together to capture business opportunities, allowing the group to accomplish what the individual group-members cannot do on their own. One of the first of many decisions the group must make as they undertake a business venture, is whether they will form as a corporation or a co-operative. Each of these business structures has advantages and disadvantages.
A corporation is a legal entity that has a separate legal existence from its shareholders and directors. Shareholders and directors are not generally personally liable for the debts, obligations or acts of the corporation. Private corporations are formed by one or more people and cannot sell shares or securities to the general public. Public corporations can issue securities to the public but the corporation must file a prospectus with the Saskatchewan Securities Commission, employ outside auditors and distribute semi-annual financial statements.
There are many advantages to operating as a corporation.
• Limited Liability: Generally speaking, a shareholder is only liable to the extent of his/her investment in the corporation.
• Continuity of Existence: The existence of a corporation is not affected by the death or bankruptcy of a shareholder or director.
• Ownership is transferable: Shareholders can sell or transfer shares to others.
• Tax advantages: Accountants and tax professionals are best equipped to assess the tax advantages or disadvantages of the business structure.
Some of the disadvantages of a corporate structure include:
• Corporations can be costly to form.
• Corporations are closely regulated and require extensive record keeping.
• Shareholder control is based on size of investment.
• A large investor could assume control of the corporation.
• Conflict may develop between shareholders and/or between shareholders and management.
A co-operative is a corporation organized and controlled by its members. Co-operatives are separate legal entities and therefore, share the limited liability and other characteristics with corporations. The democratic principle of “one member, one vote” is the characteristic that sets co-ops apart. Profits of the co-operative are distributed among members as patronage dividends.
The advantages of the co-operative structure include:
• Democratic control: The one member, one vote principle ensures co-operatives are owned and controlled by the people who use them.
• Limited Liability: Members are not liable for the debts, obligations or acts of the co-operative.
• Patronage Dividends: Surplus earnings are distributed as shares or cash to members in proportion to use.
There are some disadvantages to using the co-operative structure:
• Member participation determines the success of the venture.
• Decisions may take longer.
• As with corporations, record keeping is extensive.
• There is the potential for conflict between members and/or between members and management.
• There is less incentive for members to invest additional capital.
Corporations and co-operatives share many characteristics and both have been used successfully by groups of farmers to capture opportunities or solve problems.
For more information on this topic contact your Regional Farm Business Management Specialist at 306-946-3214 or the Agriculture Knowledge Centre at 1-866-457-2377.
July 26, 2012 17:34
Gregory Buck, CA
Munro & Company, Chartered Accountants
Small businesses get attacked by Canada Revenue Agency quite often so keep the following in mind:
1. Nothing is deductible unless supported by a proper invoice, including the vendor’s HST/GST number. Don’t think a credit card receipt will suffice.
2. Register for your own GST/HST. Even small businesses can benefit.
3. Ensure you have support for all deposits made to your bank account. On audit, CRA will call that deposit “unreported income” if you have inadequate support. So that loan from Dad. Document it and get proof of where it came from. Cash deposits? If no support, then don’t deposit them in your account. Remember, CRA don’t care about your opinion. They care about facts!!
4. Keep good records. There are lots of small computerized record keeping software solutions out. Intuit’s Quicken, Microsoft’s Money or NetSuite are good starters. Quickbooks and Simply Accounting are good for a little larger business.
5. Farming activities can be filed on a cash basis. This is sometimes an advantage. If you elect to use a cash basis you cannot go back to accrual. So evaluate your options before committing. You may want to get advice from a qualified accountant.
6. Payment solutions like PayPal and E-transfer will keep your cash flow current. They are easy to use and immediate.
7. Provide your financial information to your tax professional early. It takes time to plan!!
June 1, 2012 14:27
Heather has been providing quality financial and tax services to clients in the Kamloops area for over 20 years. Heather’s focus is on owner-managed businesses. She provides assurance, business advisory and taxation advice as well as support for electronic accounting programs such as Quickbooks and Simply Accounting. Heather takes pride in providing personal service to clients which is reflected in the high level of confidence they place in her.
Heather began her public practice career in 1989 with a local firm and joined Munro & Company in 1995. She received her Certified Management Accountant designation in 2000. When not working, she enjoys traveling, adding to her penguin collection and reading.
Heather will be a featured blogger in "Equine Enterprise".