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Can three business ventures be combined into one?

Expert: Alison R. Manzer

Mark asked:

I own a sole proprietorship for a small business. My wife also has a sole proprietorship for her own small business.

We recently created a corporation for another business venture but would like to combine all three so we only have one set of books. How do we go about doing this? I would like to keep the other names but use the corporation to bill the client.

Alison R. Manzer answered:

The three businesses; one currently corporate and two personal; can be readily combined. Each of the individuals will transfer the business, and its assets and liabilities, previously carried on as a sole proprietorship to the corporation.

This can be done on a tax deferred basis in Canada using the steps and agreements required by section 85 of the Income Tax Act (Canada). If there is no gain in value of assets to create tax, or it is preferred to pay the tax, the transfer can be done without complying with that section.

If this rollover is used it must be done correctly to defer the tax otherwise payable. This transfer results in the individuals taking shares as purchase price from the corporation.

After the transfer, the individuals will own the shares of the corporation and the corporation will own the assets and business, and will owe any liabilities assumed. The corporation will then carry on the business. The use of the names of the sole proprietorship business can be preserved by the corporation filing business name registrations.

Business can be carried on under those registered names other than the few activities, such as invoicing, issuing cheques, entering legal documents, where the corporation needs to use its legal name (although the business names can also be used if noted correctly).

About the author

Alison R. Manzer works for Cassels Brock & Blackwell LLP.

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