Business liability question

[calgarys_finest]

If i sell items through my store am i liable if someone gets harmed by the product i sell or is it the manufacture that is liable for the product.

[Sugarphreak]

...

[calgarys_finest]

The business is currently my wifes small at home business but it is quickly getting too large for our basement and has great potential. I am trying to get a idea of what kind of business registration, insurance and such i will get or need before i talk to a lawyer about corporation or just getting a quick trade name.

[Weapon_R]

In most cases you'd all be sued.

[InRich]

Just get insurance man. simple. u want a legitimate business, you need insurance.

[heavyfuel]

You didn't look into this before starting a business???

[hampstor]

Probably best to have a chat with a lawyer or an insurance guy to fully understand what kind of liability you may be exposed to and what kind/amount of coverage needed.

As a reseller, what does the manufacturer indemnify you , as the reseller from?

[ottamania]

I suggest you form a corporation with different class of shares with your wife. With corporation you are not liable personally. So if anybody sues you, you won't loose your house. Ask that to your lawyer. Different share classes are strictly for getting paid from the company. If you both have Shares A, you both have to take out same amount of money. Your accountant can look at it at the end of your fiscal year and decide if you are going to get dividends vs. salary. Which ever gets you to pay less taxes, he will select that. Its usually dividends and you end up paying less tax.

[Masked Bandit]

What's the product?

[guessboi]

Originally posted by Weapon_R
In most cases you'd all be sued.

+1 on this especially if your wife alters the product or if the manufacturer is outside Canada or US. They have no way to sue them but to sue you.

[skandalouz_08]

Insurance and incorporating is the best way to cover your own ass if something were ever to go wrong down the road.

Liability insurance is something almost every company should have. Incorporating just means that if you are sued they can't come after your personal assets, only the business assets...

Talk to MaskedBandit for CGL

[busdepot]

Originally posted by ottamania
I suggest you form a corporation with different class of shares with your wife. With corporation you are not liable personally. So if anybody sues you, you won't loose your house. Ask that to your lawyer. Different share classes are strictly for getting paid from the company. If you both have Shares A, you both have to take out same amount of money. Your accountant can look at it at the end of your fiscal year and decide if you are going to get dividends vs. salary. Which ever gets you to pay less taxes, he will select that. Its usually dividends and you end up paying less tax.

This is the idea. However, different classes of shares aren't the only way to draw income from a corporation. Dividends are only marginally cheaper on tax in Alberta at the top tax bracket. How the tax system works (usually) is that the taxes paid on dividends vs taking salary is roughly the same. Talk to an accountant who's familiar with personal and corporate tax planning. Dividends vs salary depends on what you want to do with the business.

Having two 50% sharesholder of Class A shares for example could pull different salaries from the company. Usually what's done is the owner of the shares will take dividends, and use a salary-bonus down to the small business deduction limit. Dividends can also be claimed by your spouse entirely so it really doens't make a difference who it's paid to. Then family members will take a salary as needed to spread around income to use up lower tax brackets (ie USE YOUR CHILDREN FOR TAX REDUCTION )

But relating to the OP, incorporate. If you have the potential of being sued, you should shield yourself from the liability. As a sole proprietor of the business you could be indefinitely liable for damages. Not that this is a US system of lawsuits for everything, but the risk is there. A corporation is only worth the capital inside of it.

[tenth]

Originally posted by busdepot
Having two 50% sharesholder of Class A shares for example could pull different salaries from the company. Usually what's done is the owner of the shares will take dividends, and use a salary-bonus down to the small business deduction limit. Dividends can also be claimed by your spouse entirely so it really doens't make a difference who it's paid to. Then family members will take a salary as needed to spread around income to use up lower tax brackets (ie USE YOUR CHILDREN FOR TAX REDUCTION )

Not always that easy with minor children because of income attribution rules. Family trust's are normally how you see minor children included as shareholders in small businesses. Good advice on talking to an accountant about your financial and business goals though.

Also for salaries, to avoid double taxation you're going to want to make sure any salaries taken are reasonable. Easy to pay big dollars to the owner/manager, but if the CRA catches you paying family members barely active in the business (or possibly not at all), they can deny the deduction on anything above the fair value of the services (which might be 0) and still tax the family member's salary income. Bad stuff if caught, but obviously a fair amount of grey area.

[suntan]

Pros of dividends:

- You can at least allocate some money fairly easily to your spouse.
- You don't pay CPP. Important for self employed since you pay CPPx2.

Cons of dividends:

- Don't grow RRSP room.
- It's not employment income, which means it doesn't appear on a T4, and some banks are dumb so you need to be very clear that you write a T5 too, if you need loans.

From: http://www.taxtips.ca/dtc/smallbusdtc.htm

Of note:

"For a single individual with no income other than taxable Canadian dividends which are eligible for the small business dividend tax credit, approximately $47,892 can be earned in 2012 before any federal taxes are payable."

Working stiffs get screwed.

[busdepot]

Originally posted by tenth

Not always that easy with minor children because of income attribution rules. Family trust's are normally how you see minor children included as shareholders in small businesses. Good advice on talking to an accountant about your financial and business goals though.

Also for salaries, to avoid double taxation you're going to want to make sure any salaries taken are reasonable. Easy to pay big dollars to the owner/manager, but if the CRA catches you paying family members barely active in the business (or possibly not at all), they can deny the deduction on anything above the fair value of the services (which might be 0) and still tax the family member's salary income. Bad stuff if caught, but obviously a fair amount of grey area.

It definitely is a grey area and always dependent on everyones own situation. And of course, anything that's being done wrecklessly could invite investigation from CRA if something isn't kosher. Something that was perfectly ok for one case, may not work for the others. Check with a CA who's in public practice one on one for advice on what would work best for you. The rules are always changing and 2012-2013 was a big year for changes in the tax act.