Entrepreneurship & Small Business

Funding a new business venture for my wife

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  • Aug 27th, 2014 9:41 am
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[OP]
Jr. Member
May 20, 2002
189 posts
25 upvotes

Funding a new business venture for my wife

I have a question and looking for opinions before engaging my lawyer and accountant.

Background:
I am an veterinarian. I own a holding company that owns a professional corporation which is the veterinary clinic.
I am the sole shareholder as spouses cannot be shareholders in Ontario of a veterinary professional corp.

My wife is exploring the idea of opening a pet food store.

The regulations within my regulatory body does not allow vet's to own pet stores but spouses can.

I have been given permission for the HoldCo to loan the money for this startup. The HoldCo would loan the money to the pet food store that would be incorporated. The new pet food store I think cannot be under the umbrella of the HoldCo to keep the regulatory body happy.

The loan will be at least 90k and upto $250k and maybe even more before the petstore generates income.

My options for funding:

1. Does anyone think that funding it via the holding company is reasonable? The majority of reasons for doing this is so we don't have to waste time with the banks to secure funding. Also the holdco is investing in low rate open GICs so the loan to the pet store corp would be similar interest.

2. Would it make more sense to use a HELCO from the home?

3. I could dividend myself from the holdCo and give her the money for the startup. Is this a good option?

4. Bank loan

Which do you think is most reasonable/least headaches/tax issues.
Thanks for your input,
Kevin
1 reply
Member
Aug 17, 2011
448 posts
139 upvotes
CALGARY
Option 1 is the the most straightforward from a tax-advantageous position. Basically HoldCo will loan $250k to FoodCo, end of discussion. FoodCo will pay back the loan over time, however long that may be.

Borrowing against the home for startup funding is generally a risky proposition. I tend to tell clients that your home is your "castle", and its job is solely to keep you warm and keep the masses out, not as an investment item.

Dividend to yourself personally will cause you to incur $250k in extra taxable income, on top of what you've already earned (if anything.) BIG tax hit there, so avoid that if possible.

Bank loan is possible, but you'll pay interest expense on it, and when you already have the funds in the HoldCo, paying interest for no real reason seems a step backwards.

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