Financial Planning

Should you set up a corporation with friends to invest?

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wealthgram
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Should you set up a corporation with friends to invest?

Especially in your case, Gael, I think you would want proper legal, insurance and accounting advice up-front and ongoing. This could cost a few thousand dollars initially, as well as annually thereafter. 

Contents
What is a holding company?Use of shareholder agreements

What is a holding company?

In Canada, you can have a holdco. This is just a nickname for “holding company,” which is a corporation that owns assets. Generally, the assets include cash and investments, but they can include other assets like real estate—or, in your case, vending machines and ATMs.

If your corporation will own real estate as well as carry on other business activities, it may technically be considered an “operating company”—or “opco”—as well as a holding company or holdco.

Some businesses will maintain two separate corporations: an opco and a holdco. If the opco could have risk that could result in a lawsuit, for example, holding assets in a separate holdco may make sense to keep them safe.

If an opco may be sold someday, keeping holdco assets separate may be necessary so that you can qualify for the lifetime capital gains exemption and keep your corporate savings and other assets separate.

In your case, it might be simpler to keep everything in one corporation, but there are pros and cons. And, of course, you should seek legal advice.

Use of shareholder agreements

It would also be advisable to use a lawyer to develop a shareholder agreement. If you have your own corporation, or you and your spouse own a company, this may not be as important. But once you have other shareholders, especially friends or business partners, a shareholder agreement is important.

This agreement can deal with situations like if one of the shareholders becomes disabled, gets divorced or even dies. It can deal with situations where there are disagreements between shareholders. In the case of your property, what if some shareholders want to do a renovation and others want to sell the property?

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