While entrepreneurs of all ages face a number of legal considerations prior to launch, those choosing to start a business later in life should pay special attention to succession planning, insurance and retirement issues, says Toronto business lawyer Dorothy Brophy.
“What financial plans for your future retirement have you made to date? Are you intending to continue with the business long-term and not concerned about early retirement? If so, plans can be interrupted by health issues,” says Brophy, making it important for older entrepreneurs, in particular, to consider disability and life insurance.
For some business owners, she suggests, key person insurance may be appropriate.
“If you are the primary operator and you got ill or died, would there be funds available to hire someone to replace you temporarily or long term?”
Similarly, says Brophy, those starting a business later in life should think about the extent of their succession and estate planning. “Do you have a will? Power of attorney for property? Personal care?” asks Brophy. “What/who is it that you need to protect the most? Is your spouse financially independent, or would she be in dire straights if you died prematurely?”
Older entrepreneurs should also consider whether they should make themselves an employee of their corporation so that they can contribute to RRSP’s.
“If you want to draw money out of your business for other investment opportunities, consider a holding company. Dividends flow tax-free to a holding company. However, you should seek good tax advice tailored to your personal situation as there are exemptions from tax available on the sale of a business, but these currently only apply to a sale of shares,” says Brophy.
Brophy also suggests older entrepreneurs review the tax planning they have done in the last five years to optimize their overall tax position, and consider whether the capital gains exemption crystallization, income-splitting vehicles such as a family trust, and creditor-proofing personal assets are appropriate.