Finding a Share Structure That Works For Your Business

share structureShare structures are like businesses, personalities and people; every one is different and requires a unique approach. It’s a lot more simple when there’s only one owner but having a partnership adds some additional layers of complexity.

Will you own the same class of shares or different classes of shares? Will you have a holding company inside the corporation? These are questions you need to work with your accountant to answer to come up with the right plan for you before passing it off to a lawyer to finish off the job.

Factors To Consider

How do we determine which factors play into finding the right structure for a corporation? There are a few:

  • Do the directors have another job or do they earn income as an employee somewhere else?
  • Do any directors have another business?
  • Will you be taking wages, dividends or both?

These are important factors to take into consideration because you have to decide if you want to share profits equally. You may not decide to share equally because there might be certain people in the business that are doing more than others and you want the payment structure to reflect that.

Setting Up a Dividends Structure

As I mentioned, every situation is different. Most of my clients go for dividends, so we set up a dividend sprinkling structure. A dividend sprinkling structure allows for dividends to go the owners but they don’t have to be the same amounts.

Let’s say you own the company 50/50 with a partner, you can still setup a different class of share that would allow you to not have equal distribution of the profits. The problem is if you incorporate online, which I have seen lots of people do, they miss that and end up with a single class of share. This leaves you in a situation where you can’t do a different distribution from what actual percentage of ownership is. For this reason (and many others), it’s well worth your while to get it right the first time.

50/50 Splits Rarely Work

Be careful when doing a firm 50/50 split because everybody’s energy that they put into a business is going to be different. You should always setup your corporation so dividend sprinkling is an option. It’s fine if you don’t use that system but you’ll never have the option if you aren’t properly setup for dividend sprinkling in the beginning.

What happens if something changes in 5 years time and you’re still working full time in the business while your partner is spending their time focused on other projects? Even though you’re a 50/50 split, that doesn’t mean you shouldn’t be setup for dividend sprinkling.

Every Situation Is Different

If there’s one thing I want you to walk away with, it’s to remember that every situation is different and requires a unique structure. There is no “one size fits all” approach to creating a corporate structure and you should not treat it as such or you’ll likely pay for it later on.

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