Q: Why should I consider reorganizing my corporate structure? Part I of II
A: Most corporations are incorporated with only common shares. As your company grows, you may want to provide ownership to family members or to key employees.
Structured properly, dividends may be paid on one class of shares at the exclusion of another class. If you are in the top marginal tax bracket and your adult child needs to pay $10,000 in tuition, you have to draw $18,700 in additional salary or about $14,800 in dividends to finance the tuition. If your adult child, held a non-voting class of special shares and had no other income, he or she may receive up to $37,000 in dividends without tax payable. (all figures are approximate)
A discretionary family trust is often utilized where father wants to provide the benefits of stock ownership, but he does not know who will ultimately own the company. A corporate beneficiary named in the trust indenture, will provide a cost and tax effective way to transfer excess cash to a holding or sister corporation. There may also be benefits from a family law perspective in utilizing a discretionary family trust.