Entrepreneurship & Small Business

Can you deposit money into your corporation?

  • Last Updated:
  • Jun 15th, 2019 2:26 pm
[OP]
Newbie
May 28, 2019
4 posts

Can you deposit money into your corporation?

I was wondering how incorporating works versus being a sole proprietor.

If I already have a corporation and then later wanted to inject money into it from my personal account, is that just a simple deposit?

A related question is if there are more than one shareholders, would the other shareholders be required to also deposit money with me? If they didn’t would their ownership percent change?

Thanks
27 replies
Deal Addict
May 12, 2014
1981 posts
1387 upvotes
Montreal
You can loan money to your corporation, and in that case the other shareholder isn't required to do so, and it won't affect ownership percentage. However you'll want your accountant to properly document this.

Alternatively, you can inject capital (ie get shares). In that case the ownership percentage and voting rights may change depending on the class of shares and rights attached. The other shareholder may be forced to contribute depending on your shareholder's agreement.
[OP]
Newbie
May 28, 2019
4 posts
Thanks. I guess it is kind of complicated compared to sole proprietorship as there are other variables to consider. And it would seem that putting in the money at the formation of the corporation would make things easier.

So when a person first starts their corporation as a small start-up, how do they determine what the company is worth? And would they have to buy the initial shares at the business registry when the corporation is formed?
Deal Guru
Aug 2, 2010
14172 posts
4107 upvotes
Here 'n There
It's not complicated at all. You either loan $ your co or subscribe for shares and document whichever you do. That's it. It couldn't be more simple.

When you start a corp you are not really determining 'what it's worth' when you invest in it. You are deciding how much you want to invest. You don't buy any shares at the 'business registry' (whatever that is you are referring to). You just subscribe for them on your own whenever you want.
Sr. Member
Nov 12, 2014
744 posts
478 upvotes
Kingston, ON
When you first start a corporation, on Day 1, it's not worth anything.
Deal Addict
May 12, 2014
1981 posts
1387 upvotes
Montreal
Captain123 wrote:
May 31st, 2019 1:03 am
...I guess it is kind of complicated compared to sole proprietorship as there are other variables to consider. ... putting in the money at the formation of the corporation would make things easier.

So when a person first starts their corporation as a small start-up, how do they determine what the company is worth? ...
Yes, it's certainly more complicated than a sole proprietorship since there are additional record keeping requirements. You can certainly do it yourself, but if you've never done it before you probably won't have time to both learn all the details and get your business off the ground all while possibly dealing with kids if you have any. Paying a lawyer or accountant will be money well spent.

Putting all the money required from the start is not required nor easier really but can be a good idea for many reasons: it helps you plan your personal budget, forces you (hopefully) to make realistic cash planning for your corporation, avoids making a "cash call" to your business partners when they may be unable to provide cash.


As for what a company is worth at the beginning, it really depends on why you're asking. For yourself, to know how much you should risk? For a business partner, to know at what price to sell your stake for?
Etc.
Newbie
Nov 12, 2008
84 posts
18 upvotes
Kelowna
As my corporation earns enough money, I reimburse myself for the capital I purchased with my personal funds.
Deal Guru
Aug 2, 2010
14172 posts
4107 upvotes
Here 'n There
DKaz wrote:
May 31st, 2019 10:56 am
As my corporation earns enough money, I reimburse myself for the capital I purchased with my personal funds.
Actually you can't reimburse yourself, but rather the corp must redeem your shares in order to return your capital. If you merely pay out the money in order to reimburse yourself without redeeming the equivalent shares concurrently then any such monies received is taxable in your hands. I always subscribe for my shares for a nominal $1 and loan the rest and then just have the corp pay it back until it's paid back and then I issue divs or keep the money in the corp. Easy peasy.
Last edited by eonibm on May 31st, 2019 2:11 pm, edited 3 times in total.
Newbie
Nov 12, 2008
84 posts
18 upvotes
Kelowna
eonibm wrote:
May 31st, 2019 2:03 pm
Actually you can't reimburse yourself, but rather the corp must redeem your shares in order to return your capital. If you merely pay out the money in order to reimburse yourself without redeeming the share instead then any such monies received is taxable in your hands. I always subscribe for my shares for a nominal $1 and loan the rest and then just have the corp pay it back until it's paid back and then I issue divs or keep the money in the corp. Easy peasy.
How is it different from me working for a business, purchasing work related things from personal funds and getting reimbursed for it? It's the same thing isn't it? I'm an employee of the business.
Deal Guru
Aug 2, 2010
14172 posts
4107 upvotes
Here 'n There
DKaz wrote:
May 31st, 2019 2:07 pm
How is it different from me working for a business, purchasing work related things from personal funds and getting reimbursed for it? It's the same thing isn't it? I'm an employee of the business.
Because if the money was paid to the company for the shares the money can only come back to you if the shares are redeemed.

If you did not receive equity for the money put in then you did not 'purchase [any] capital' as you mentioned and it was instead a loan. Which was it? It can only be one or the other.
Newbie
Nov 12, 2008
84 posts
18 upvotes
Kelowna
Loan I guess, because the shares tidbit I don't understand one bit.
Deal Guru
Aug 2, 2010
14172 posts
4107 upvotes
Here 'n There
DKaz wrote:
May 31st, 2019 2:24 pm
Loan I guess, because the shares tidbit I don't understand one bit.
Well talk to your accountant and make sure you are doing it right or it will cost you in income tax.
Deal Addict
May 12, 2014
1981 posts
1387 upvotes
Montreal
DKaz wrote:
May 31st, 2019 10:56 am
As my corporation earns enough money, I reimburse myself for the capital I purchased with my personal funds.

I believe that your use of the word "capital" here is causing some confusion.
I think you mean it as "assets", and not as "share capital".
[OP]
Newbie
May 28, 2019
4 posts
For the loan scenario, what happens if the corp doesn't have the money to pay back the shareholder in time? Also you mentioned that an accountant should document loans, but I thought it was just simply writing it down in the minute book.

For the share purchase scenario, I want to set up a way so that ownership % doesn't change. Could this be done if a shareholder buys a stock in a separate class of non-voting unissued stock? I don't really understand how % ownership is related to number of stocks if there can be multiple classes and rights.
Deal Guru
Aug 2, 2010
14172 posts
4107 upvotes
Here 'n There
FrancisBacon wrote:
May 31st, 2019 10:05 am
Yes, it's certainly more complicated than a sole proprietorship since there are additional record keeping requirements.
Issuing yourself shares or documenting the loan is a one-time 5 min event. It is not 'certainly more complicated'. Sheesh! Stop fear-mongering.

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