When discussing incorporation for professionals we need to bring in legal and tax advice to help with the process. Legal expert Bob Braun from Sheppard Braun Muma in Regina has provided a response to Amber’s question from her Client Hero feature on July 7 (link at the end of Bob’s response). Thanks a lot for helping us out with this one Bob!

Amber: One thing I am wondering is if in a fairly new relationship, when would you consider adding this person as a shareholder to your professional corporation? What is the risk?

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Bob Braun: I think you want to be a little cautious about adding a relatively new partner to your professional corporation as a shareholder. You would likely add such a partner as the holder of non-voting common shares, and while such shareholders don’t have much of a say in the day-to-day operation of a corporation, non-voting common shares grow in value just as your voting common shares do. As a result, if your relationship ends, you’re left with your former partner owning a portion of your company and you facing a buyout. And sometimes a buyout can be less than harmonious! If you choose to add a new partner as a shareholder I’d recommend you enter into at least a simple shareholders agreement that makes it clear you have the power to buy your former partner out when you choose to, and details what the share price will be, or at least, provides a formula for determining the share price. As to when you should add a new partner as a shareholder is concerned, there are different reasons for adding a partner as a shareholder, but the most common reason is income splitting to reduce your income tax. I think it’s best to speak to your accountant in that regard.

So far I’ve addressed my comments to adding a new partner as a shareholder. You should be aware, as well, that if partners have been cohabiting for two years, Saskatchewan law considers them to be in a spousal relationship and subject to a division of property, which may or may not be equal, depending on a variety of factors. After two years of cohabitation, even if you haven’t added your new partner as a shareholder, your new partner will start to acquire an interest in your professional corporation. If you’re concerned about a new partner acquiring an interest in not only your corporation but in other property you own, such as your house, etc., you should consider entering into a contract completed in accordance with The Family Property Act, which essentially means with certificates of independent legal advice attached. Such a contract can be signed anytime, but the best time is usually before the second anniversary of cohabitation.

I hope this is helpful. You sound like a remarkable person, with a bright future. All the best to you.