Holding Company - Now or Later?
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Thread: Holding Company - Now or Later?

  1. #1
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    Holding Company - Now or Later?

    HI Everyone,

    I'm a recent paramedic graduate and want to open a small business for consulting and education as a means of secondary-income. Down the road I intend to start a medical service provider company as well as own real-estate. I know a holding company will best protect any real-estate assets from litigation originating against the medical service company.

    My question is: should I set-up the holding company network now or wait until I'm in a position to start the medical service company? Does anyone know if I will be creating more legal costs for myself down the road if I wait? (E.g., $500 now vs $1500 if I wait).

    Any help would be greatly appreciated.


    Thanks,
    - Colin


  2. #2
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    The corporation won't really protect your real estate. If you are sued, and found personally liable, your shares in the company can go towards the settlement. If you owned the real estate personally, and were found personally liable, they'd take the real estate.

    Of course, if you are never found personally liable, your assets are safe either way.

    The protection comes from the real estate side. If you are sued in regard to your real estate holdings and are not found personally liable, then the company restricts your assets.

    This all assumes it goes beyond your insurance coverage.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

  3. #3
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    Quote Originally Posted by Just a Guy View Post
    The corporation won't really protect your real estate. If you are sued, and found personally liable, your shares in the company can go towards the settlement. If you owned the real estate personally, and were found personally liable, they'd take the real estate.

    Of course, if you are never found personally liable, your assets are safe either way.

    The protection comes from the real estate side. If you are sued in regard to your real estate holdings and are not found personally liable, then the company restricts your assets.

    This all assumes it goes beyond your insurance coverage.
    Hi, thanks for the quick reply.

    Just to clarify, if the Medical Service Company is sued as result of an employee or the company itself being liable, the Plantiff can then go after assets held in or owned by the majority share holder (i.e., the Holding Company)? My understanding was a holding company prevented such action and the Plantiff could only seek assets and liability insurance owned by the Medical Service Company itself.

    Or do you mean if I personally, as an employee of the Medical Service Company am sued, they can go after my personal assets (be that my Holding Company shares, real estate, dog, etc.)? If this is what you mean, I understand what you're saying.

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    Any good ambulance chaser will list everyone possible in a lawsuit. They will list the person who made the mistake, the company itself, as well as all the owners of the company. If you are the employee at fault as well as the owner even better for them.

    Now if, in court, the judge finds you as the owner somehow at fault (maybe you hired someone not properly trained, I don't know) then all your personal assets are at risk. The corporation won't protect you.

    As part of your personal holding, the shares of the real estate holding company would be subject to the settlement.

    The key is you being found personally liable and the claim being higher than your insurance coverage.

    Corporations weakly protect things inside a company from going out, but they don't protect assets you hold from claims against you.

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    Interesting (and eye opening).

    I suppose then the only benefit to a Holding Company in this situation would be to redistribute profits from one company through the Holding Company and reinvest in another within the organization that requires funds/purchasing of goods/etc. without being subject to taxation. Or have I been misinformed here too?

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    Holding companies are taxed at a higher rate than an operating company. No real tax advantage, sorry.

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    Quote Originally Posted by Just a Guy View Post
    Any good ambulance chaser will list everyone possible in a lawsuit. They will list the person who made the mistake, the company itself, as well as all the owners of the company. If you are the employee at fault as well as the owner even better for them.
    Leaving aside any comment on the pejorative "ambulance chaser" I'll disagree with the premise being propounded.

    True, in some tort cases, where it is not clear at first blush where fault lies, some "shotgun" pleading might be called for. But the notion of keeping in the action to the end of trial every possible defendant is not a course responsible counsel would undertake. It will greatly protract the proceedings, drive up costs and, in the end, someone must bear those costs. I would not want to be the one explaining to my client just why it is that he is on the hook for the costs of a conga line of successful defendants. Moreover, if the court finds the action should never have been brought or maintained against some defendants, the award of costs might be punitive indeed, such as an award of "special costs" or "solicitor client" costs, etc.

    There is a sound reason for one to incorporate in order to obtain the benefits of a limited liability company. JAG suggests those benefits are more illusory than real. I disagree. There is a long line of authority, starting perhaps with the seminal case of Salomon v. Salomon, [1897] A.C. 22 (H.L.) to support my view.

    Some kind of fault finding against he company "owner" is not, as JAG suggests, an open sesame to personal liability of said owner. There are strict rules developed in the case law that apply where one seeks to "pierce the corporate veil".

    Quote Originally Posted by Just a Guy View Post
    Now if, in court, the judge finds you as the owner somehow at fault (maybe you hired someone not properly trained, I don't know) then all your personal assets are at risk. The corporation won't protect you.
    That's an illustration of a classic case where the corporation will protect you. Eg., you operate a car repair business through A. Ltd. You hire Joe, a mechanic. In law, the company hires Joe, not you. Joe, improperly trained, does a negligent job in repairing a customer's brakes. Brakes fail, car crashes. Joe can be sued. A tortfeasor is always liable for his own tort. But, you, as owner of all the A. Ltd. shares cannot be sued in your personal capacity. The plaintiff can take judgment against the company, your liability is limited to the value of your shares.


    Quote Originally Posted by Just a Guy View Post
    Corporations weakly protect things inside a company from going out, but they don't protect assets you hold from claims against you.
    Again, I'll respectfully disagree.

  9. #8
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    Professional corporations do limit liability to some extent, but professional malpractice is an exception. As a physician with a professional corporation, this was a very important issue to consider as one could lose all one's personal assets in a negligence lawsuit. Of course the best defence is to always practice with the highest standards and document, document, document. In the OP's case, he says he will be consulting and educating, as opposed to providing patient care. However, I have done consulting on medical management issues as an incorporated physician, and the contract specifically required me to produce evidence of my licence and professional insurance, and outlined my liability, although my consultations did not require me to put a hand on any patient. This was after I had retired from my full time job. I had considered doing consulting on an ongoing basis, but realized that the costs of keeping up with licences, insurance and mandatory CME would make the break even point higher than the amount of consulting work I expected to do. I therefore discontinued practicing and converted my professional corporation into a holding company.

    http://www.corporationcentre.ca/doce...me.asp?t=incpr
    Last edited by heyjude; 2017-01-11 at 10:48 PM.

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    Mukhang,

    I too used to believe as you did about the law, unfortunately I know several people who have faced lawsuits and discovered the truth of the matter. Fortunately, their insurance covered them, but they were named and their lawyer did explain that they could be found liable personally. Their lawyer says it happens quite a lot actually according to their lawyer. I also asked my lawyer and they said the same thing. You never know what's going to happen when it gets in front of a judge.

    Heck, there's a lawsuit in ontario right now where a woman is suing Walmart, the landlord, the property manager and a whole lot more because she fell trying to catch a runaway shopping cart that her son let go of. When the judge was going to dismiss the case, they motioned to sue because the carts didn't have breaks...the judge is allowing the case to proceed.

    https://www.insauga.com/mississauga-...-shopping-cart

    Now, she hasn't won he case, but this frivolous case certainly wasn't thrown out either.

    If you read the government's website...

    http://www.ic.gc.ca/eic/site/cd-dgc....g/cs06641.html

    "However, if a shareholder has another relationship with the corporation (for ex., as a director), there are circumstances when this person can be liable for the debts of the corporation. In other words, the person would not be liable for the corporation’s debts as a shareholder, but as a director. Under the CBCA, directors have a number of duties and liabilities (see Duties and liabilities of directors and officers). For example, it says that directors can be held liable for certain acts or for failure to act."
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

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    Quote Originally Posted by Just a Guy View Post
    Mukhang,


    Heck, there's a lawsuit in ontario right now where a woman is suing Walmart, the landlord, the property manager and a whole lot more because she fell trying to catch a runaway shopping cart that her son let go of. When the judge was going to dismiss the case, they motioned to sue because the carts didn't have breaks...the judge is allowing the case to proceed.

    https://www.insauga.com/mississauga-...-shopping-cart

    Now, she hasn't won he case, but this frivolous case certainly wasn't thrown out either.

    If you read the government's website...

    http://www.ic.gc.ca/eic/site/cd-dgc....g/cs06641.html

    "However, if a shareholder has another relationship with the corporation (for ex., as a director), there are circumstances when this person can be liable for the debts of the corporation. In other words, the person would not be liable for the corporationís debts as a shareholder, but as a director. Under the CBCA, directors have a number of duties and liabilities (see Duties and liabilities of directors and officers). For example, it says that directors can be held liable for certain acts or for failure to act."
    Fair enuff JAG, but in the Walmart case, for eg, is the plaintiff being allowed to pursue her case against the shareholders of Walmart? If the concept of limited corporate liability is now a thing of the past, many here on CMF should be seriously reconsidering investing in the stock market. The logical extension of what you say is that if you have an ownership interest in a corporation, the company debts are your debts.

    I'll agree with the proposition that the immunity of corporate principals has been significantly eroded by modern statutes. For example, in British Columbia (and I would guess in most of Canada) legislation such as the Employment Standards Act has imposed liability for various forms of employee compensation on corporate directors. That is but one example.

    The government website to which you provide the url supports what I have said:

    "Incorporation limits the liability of a corporation's shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If your corporation goes bankrupt, your shareholders will not lose more than their investment (except shareholders who have provided personal guarantees for the corporation's debts). Creditors also cannot sue your shareholders for the corporationís liabilities (debts), even though the shareholders are the owners of your corporation.

    However, if a shareholder has another relationship with the corporation (for ex., as a director), there are circumstances when this person can be liable for the debts of the corporation. In other words, the person would not be liable for the corporationís debts as a shareholder, but as a director."

    I am sure I do not need to tell you that when companies appear to he headed towards financial difficulty, the first thing that happens is the directors tender their resignations. I have been a shareholder and director of many more corporations than I'll ever remember. A good number of those were companies that a few of us formed as private companies then took public. I'll agree that was in the "Howe Street" era when that was much more easily accomplished and always profitable. It's also why I do not "invest" in the stock market today. Having been an "insider", I know how hard it is for the average arm's length investor to hope to profit after the insiders have had their fill at the trough. But, I have never once been held personally liable for any corporate obligation, other than appearing before a securities commission to give evidence on occasion.

    Now, I live in country where the forest industry is the backbone of the local economy. It has taken almost a decade of study, but I am now able to understand and profit from such things as timber sales. Not something one hears much talk about here on CMF, which is almost exclusively focussed on buying into a market which few truly understand (me included) and over which even the most sophisticated CMFers have absolutely no control. If I buy timber, or one of the forms of timber rights, I have a fair measure of control. Just as you have with all the dozens (probably hundreds) of real properties you own. Would you trade those for pieces of paper?

    But getting back to the point, I'll say that I do my log trading through a corporate vehicle. If you are correct, I am living in a fool's paradise. What my wife and I own is constantly at risk. I mention my wife, because if incorporation offers no protection, one must take it that one cannot shelter one's assets in the name of another. Are all of your real estate holdings in your personal name?


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