Latest / It's Time for Success: The Business Insights Podcast / Start Smart. Exit Smart. Legal Guidance Every Entrepreneur Should Hear with A.J. Fox

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Start Smart. Exit Smart. Legal Guidance Every Entrepreneur Should Hear with A.J. Fox · It's Time for Success: The Business Insights Podcast

• Sharon 00:16 I’m Sharon. Welcome back to the It's Time for Success: The Business Insights podcast. I'm your host, Sharon DeKoning, and today I get to chat with someone I have the utmost respect for, not just professionally, but personally. A.J. Fox is my lawyer, and honestly, one of my favorite people to talk to. She just gets it all of us have or will encounter a lawyer whom talk over you. A.J., does not. She has this amazing ability to take intimidating legal topics and explain them in a way that makes sense—no jargon, no fluff. She's sharp, hilarious, and generally cares about her clients and their businesses. In today's episode, we're diving into two critical conversations that every entrepreneur, whether just starting out or thinking of their exit, needs to hear. First, the legal basics for entrepreneurs, what you need to know when starting your business the right way, and second, the exit strategy—the legal side of selling, transferring or even closing your business, so whether you're dreaming up your first adventure or planning your final chapter. A.J’s insight will give you clarity, confidence and a solid legal roadmap. A.J., thank you so much for taking time out of your busy schedule to help myself and our listeners in this foreign territory. A.J. 01:29 Thank you so much, Sharon. What an introduction. Yes, very happy to be here and appreciate the opportunity to speak to you about these two very important topics. Sharon 01:43 Yes, right before we started recording, we talked about how even myself, and I'm sure other entrepreneurs, (I always throw myself underneath the bus), but when you start a business, you don't even think about the exit strategy. And I'm at the point of my life like, what is my exit strategy? And I did not know that a lawyer can help me with that avenue. So I'm really excited for today's episode. I'm going to get to learn so much. And just a bit clarify, I am selfish doing this podcast because I get to learn so much all the time with the hopes of helping other people as well. Okay, so let's start at the beginning. A.J., what legal steps do people often skip or misunderstand when launching a business? A.J. 02:19 Yeah, so I think Sharon, what sometimes happens, I've seen it happen—somebody gets this wonderful idea to throw themselves into this project or this venture that is so exciting. And yes, let's get going on it, and they forget about the boring stuff, like meeting with the lawyers and the accountants to make sure that their foundation is solid and that they’re proceeding on the direction that they should be proceeding in right? I always think that, and I know it doesn't sound terribly exciting, but yes, when you get the idea of a business and you want to try and move forward with it that one of the first people, or the first people, I think you should talk to about it, or at least very early on, the accountant and the lawyer, right? Because it's so fundamentally important the business structure. Do you need a sole proprietorship? Do you need a partnership? Do you need a corporation? Right? There's lots of very well meaning people and friends that say, “Oh, I have a corporation and I it's going to save me tons of money, and I should have a corporation, right?” But that's not always the case. It isn't always the case. Sharon 03:37 What about even, like, simple things, like, do I need a GST number? A.J. 03:40 Yes, exactly right. Sharon 03:44 I think it's a, you know, more than I do isn't an X amount before I have to file for the GST. Like, there's so many things. What happens if you're selling into into Saskatchewan or a border city? Do you need a PSD number? Like, there's so many other legalities that go into it. A.J. 03:56 Yes. And those, certainly, those items or those topics are more the accounting side. I direct those questions, certainly to the accountant, but yeah, fundamental questions, right? Sharon 04:13 I've learned also over the years that I need three people in my corner, accountant, a lawyer and a banker. Yeah, I need them in my corner. Those are my three, my three that I need in my corner. Yes. A.J. 04:26 And, you know, Sharon, that's an interesting point, because as I, you know, go on in my career, and I've had a few years under my belt now, I find that it's extremely effective and efficient to have the client, the lawyer and the accountant, all at the same time in the same place, by Zoom or in person, we get so much more accomplished. And that's not even at the beginning. That's in the middle, if we're doing something interesting in the middle that needs accounting and legal. And definitely at the end. Sharon 05:05 That's a thing. What's that you could do all three of you all at once? A.J. 05:09 And it should be honestly, yes, absolutely. And I think most of the accountants that I deal with would agree, because we… you know how it goes, Sharon, let's say you come in and say, “A.J., I have a question about this.” And I say, “Okay, Sharon, this is what I give…this is the kind of legal advice I'll give.” You go and take that advice and talk to the accountant, and then you say, “I can't remember what A.J. said, but it's something like this.” And the accountant says, “Sharon, go back to A.J. and ask this...” Well, come on, you guys. Let's cut face on it and get to where we need to get to. Sharon 05:48 My goodness, see, I just learned something. Right? How far are we in three minutes? Because, like, unbelievable. I just learned something from that. I didn't know that was a thing. Because right now, even myself, I have ideas and so I talked to the accountant, and I phoned the bank and blah, blah, blah, blah, blah, and I just get you all in one. I love it. I love it. So thank you. Okay, thank you. Yes. Okay, so let's talk about pros and cons of the business structure. So we got sole proprietor, partnership and Corporation. Correct me if I'm wrong, is there? Can you elaborate a little bit on those. A.J. 06:17 Sure, so let's start with the sole proprietor. Sole proprietor is the most simple and basic business structure, right? It's very little cost to start. You don't even have to register a name if you don't want to, right? Lawyers, I think, would tell you it's probably a good idea to register a name and corporate registry. When I say corporate registry, it doesn't mean it's a corporate name, but that's the name of the body that register partnerships, sole proprietorships through and corporations. So yes, easy to start. Very little cost involved. Don't even have to register the name if you don't want to. The downsides of sole proprietorship is one of the big ones is liability. So let's say that we have Little Bo Peep’s lemonade stand. Okay? So Little Bo Peep has gone to her lawyer and her accountant said, What should I do? Sole proprietorship, partnership or corporation? Oh, we think it should be a sole proprietor. Okay, good. So she started her lemonade stand, but she has, I don't know, some devilish plan or something goes wrong with the lemonade and somebody gets sick and they say, well, but you knew that Little Bo Peep. You knew that ingredient that you put into the lemonade could cause sickness, so we're suing you. So yes, and Little Bo Peep is going to get sued personally, right? And I'm not making light of that. I know that that may be a simple example, but it's in the real well, it's a big thing, right? Because… and I'm not saying at all, we're going to get to the corporations, but I'm not saying if you have a corporation, you can hide behind the corporate veil, that's what it's called, and say, “Oh no, but I didn't have any… I wasn't any part of that. If you're going to sue anybody, sue the corporation.” Directors often get sued if a corporation gets sued, but anyway, let's come to that sole proprietorship. Yes, simple, straightforward, little cost, little protection income. Income is going to be your own income, right? So Little Bo Peep files her own personal income tax return, any income, any expenses, are dealt with through her personal income tax return. Partnership. So that's a business arrangement between two corporations, two individuals. Yes, it can be… I thought when I was preparing for this, let's talk about Fox Wakefield, the partnership. Yes, it certainly needs to be registered at corporate registry. That's just part of the regulatory requirements. If it's Sam and Bobby's Hamburger Stand that still should be registered. It's not fatal if you don't. But there is that nuance there where, you know, professional regulatory bodies, if you're acting, or if you're put together as a partnership, you need to be registered. Your name to be registered. I'm not going to get into limited liability partnerships, because I think that’s a little bit next level. But anyway, yeah, partnerships, two individuals coming together, just like my law partner, Jeremy Wakefield and I have come together and said, “Let's have a partnership which is governed by a partnership agreement and registered with corporate registry, the name” Now the next one that I'd like to talk about is incorporating, because there are lots of myths and mysteries and all sorts of things floating around about corporations. Before you incorporate, talk to the your accountant and lawyer, right? Because there's a lot of cost involved in incorporating, right? You have to… you don't have to, but if you're going to do it properly, I would suggest that you hire a lawyer to incorporate for you, get your minute book up to date, or get your minute book in place. Make sure… that's that's crucial, that minute book is crucial. So there's a lot of cost at the outset. The corporation must be registered a corporate registry. It must file its own tax return. So it's its own separate legal entity, and that's an important distinction right between sole proprietorship and partnership. The law sees the company, Acme Trucking Ltd as its own separate legal entity. So, I touched on this when we were talking earlier about the sole proprietorship. The law says that the corporations, there is some protection to the directors and the officers of corporations, because of that very essence of what a corporation is—it's its own legal entity. So if somebody's going to sue Acme Trucking Ltd, as long as the directors of Acme Trucking Ltd weren't negligent or willfully not doing what they should be doing, they get named in the lawsuit, but that doesn't necessarily mean that they're going to be found liable, right? So, right? Sharon 11:51 Like when I signed my corporation papers, I feel that I had to sign a document, correct me if I'm wrong, so there's a lot of documents that you give me to sign, just so you know, and I trust you, but there's… I feel like I have to still sign something saying that I am responsible. Did I sign something like that? A.J. 12:08 Well, you would have, when you first Incorporated, you would have signed a consent form and liability form as director, right? Because you're the director of your corporation and the directors take on that liability, sorry, they take on liability, but they're also protected from liability. Okay? They're not acting negligently or carelessly or foolishly, right? Sharon 12:37 Yeah, okay, so it's not a matter of something goes south here. If I'm still a good person and I did everything I can do, properly, it's not like they're going to come and take my house. A.J. 12:45 That's right. That's right. Now, Sharon, I want to be clear on that, because everybody thinks, oh, great, but yes, it is great. Sharon, if something went wrong, you would be named in the lawsuit, right? Because the litigation lawyers are going to name you, your dog, your grandmother, everybody. And this is not… litigation lawyers are crucial. I'm glad I'm not one of them, but they will take the approach of naming everybody. That does not mean that at the end of the day you will necessarily be liable, Sharon 13:18 Right? So just be good, darn it, be good and you're fine, good. So I know it's an accounting question, but one of the things that I often get questioned—is it based on dollar amount, or is it based on size? When would you be consider become incorporated? A.J. 13:37 Yeah. And from from a tax perspective, I leave that to the to the… Sharon 13:42 Okay, so it's more so dollar amount, it's dollar amount, okay, A.J. 13:47 But remember, yes, that's one aspect of it, okay, so if you get this much, or if you make this much, then it makes more sense to be incorporated. But the other really important aspect to take into consideration is—is your business one where you need to have that liability protection, right? Sharon 14:09 Correct? Okay, yes, I never picked that up. One thing I noticed, because I was so prepared and I first started up and I filed year end at December 31, but when you become incorporated, those dates are different too, which is kind of a, I kind of liked it anyways. That was a win for me, small win, but it was still a win. Okay. What's a mistake you see entrepreneurs make that could have been avoided with the right legal advice right off the get go when they're starting up. What's one mistake that you see? A.J. 14:41 Well, yes, well again… and I think I sound like a broken record, but they launched into this thing without getting proper advice, right? And so let's take, for example, you know, one… somebody says, oh, but you should be incorporated. And the guy goes out and. Incorporates himself. I shouldn't say guy, guy, girl, whoever it is, goes out, incorporates themselves, and then they find out—my goodness, I didn't realize there was going to be this much cost. If I hire an accountant, I've got to pay them $2,500 a year, or, you know, something like that, to do whatever it is, and really I'm making S50,000 a year. Do I really need a corporation? Probably not, but I know that, everybody thinks, “Well, I don't want to have to go see a lawyer and I don't want to have to go see an accountant, because it's going to cost money,” but if you do it right, right out of the chute, it's going to be much better for you in the long run. Sharon 15:42 Got some guidance. So if I'm starting up my lemonade stand, yeah, and I have this vision, but I haven't launched yet, I'm going to make an appointment with my accountant, and you're going to talk about scenarios. So in that initial appointment, what are you telling them? What are you talking about? A.J. 16:01 In the initial appointment? We talk about? So what does this look like? Who's going to be involved in it? Are you going to have employees? Are you going to be hiring contractors? So what does it look like? Sharon 16:16 Okay, so that's when the whole risk fast factor can come in. It all depends on the business outline that you're creating. My lemonade stand might be different than me building frickin’ I don't know roads, right, like whatever the case is, yeah, gotcha. Okay, so that's why you need to go there. Okay, so set up an appointment with your lawyer. Set up an appointment with your accountant, perfect. Okay, so then you're avoiding any of those mistakes later on. Sometimes I feel I wished I would have known this 18 years ago, because I did start up, just jumped in and learned as I go, and I feel that I've… even 18 years I'm still correcting things like even the structure of my QuickBooks, for my account structure, like the chart of accounts to, you know, I didn't even know anything about incorporating that… probably stayed so proprietor for way too many years, right? So I can see how they go in alignment together, yes. And so anyways, you evolve, and you learn as you go. So I'm hopefully somebody, oh dear, can learn from it. A.J. 17:12 So Sharon just, I know, just on that point, because I'll forget about it. And I want to make sure that I make this point, another really important part of the whole scenario is, don't be a one man band. And I realize that's very easy for the professionals to say, but I find it over and over again. Let's say Little Bo Peep's Lemonade Stand. Well, maybe something a little bit more sophisticated than that, but one big topic that I talk to my new clients about is, “Do you like doing books?” So if you're a baker or you're a truck driver or you're a rancher or you're a rock person, whatever, do you like doing books? And I'd say 99% of the time, “No.” And I say, “Okay, look at you're good at baking cakes, you're good at raising cattle, you're good at growing crops. Do that. Hire a bookkeeper,” because I've seen this happen over and over again where you're starting out, the business person is starting out, and they want to keep their costs down, which is entirely understandable, but they're trying to take on everything and do everything, and books—God love the accountants and the bookkeepers, but books seem to get less left to the end, and they don't get done every month, or whenever they're supposed to get done, and they or they don't get done every year, and then we start to have problems, and it compounds on itself, right? So again, I know that everybody tries to keep their costs down, and I understand that wholeheartedly, but do what you're good at, right? Yeah, and and hire other people to help you. Sharon 19:05 Yeah, I was that person. I did it all. I almost killed myself in the meantime, because, like, you know that that time, I wasn't even taking money out, like, I didn't have anything. I just started up. I I relied on my husband's paycheck. I worked 12 hours. I didn't even have any money, right? So it takes a while to get there, for sure, but that is one thing I believe, and I've learned over the years, that if you leave your bookkeeping too late, you're playing catch up, whereas if you do it ahead of time, you're able to see it before it gets into a bad state, if that makes sense, right? Like you're able to analyze that. So hire that out, 100% agree. If I could go back, that's one thing I would have delegated out right off the get go. A.J. 19:46 And the bookkeepers love doing this stuff.. I have very good clients who are bookkeepers and I love them, right? Sharon 20:02 It is true. Because when you start a business, you do what you're good at or what you like, and I started… my very first machine was an embroidery machine. It was a desktop, little embroidery machine. And that thing would run all night because I started out of my house. And now I don't even get to run the multi heads, the state of the art equipment. I don't even get to run it anymore. I don't even get to have the fun that I started. So that's just part of a business. So if you start a business, just realize it does evolve, and you get to do the things that… different things than what you signed up for originally. It's just a mindful thing for sure. Okay, so let's talk about I've also learned through my WPO group that agreements, paperwork are your friends. Can you talk a little bit about paperwork and agreements, just to be safe as you progress, as companies start. A.J. 20:46 Yes agreements. So corporations—what do you need if you're going to be a sole shareholder? Director? Officer? Well, you don't need a unanimous shareholders agreement, because hopefully you're not going to have too many fights with yourself, but if you have… if you're starting up a business with your friend Jimmy, and you're both going to be shareholders in the corporation, make sure that you have a unanimous shareholders agreement (USA) in place, right? That agreement covers off the four, what I call the four Ds—death, divorce, disability, and disillusion. Disillusion is a nice way of saying I'm pissed off with you and I want you out, so, but yeah, so crucial you get that in place, and when the honeymoon is still happening right, when you're still happy with your partner and everything's wonderful, let's get this roadmap in place that will dictate, and we've already agreed to it, this will take the way out in the event of one of those things happening. Sharon 21:59 So that would fall into place when they take their initial meeting with you, that would be brought up as well, right? A.J. 22:05 Yes, absolutely, if there's more than one shareholder, right? Rarely does it happen, although some accountants and I think some lawyers do this, rarely is there a… in a mom and pop outfit, but you know, siblings, friends, everything can seem rosy and it's all sunshine and lollipops until something happens. And I'm not saying in the instant something happens or you get upset with your partner, that you say, “Okay, we're done.” But if you can't come up with an agreement about the road map out, that's already in place, Sharon 22:49 It's already in place. They know where they're… where they stand. They don't have a reason to argue and beat the… it's called beat the dead horse because it's already written. A.J. 22:59 So whether it's a shareholder, or whether it's unanimous shareholders agreement, or whether it's partners, right… Sharon 23:07 Even if… what a few, because some maybe… I know we're going to jump ahead here, and maybe we're going to touch on it later, but the exit strategy—sometimes you do it, your exit strategy is for—I don't have a child, but if your child takes over, like even for something like that, as simple as for your exit strategy, or is that different? A.J. 23:22 So you mean, have an agreement in place… Sharon 23:29 Yeah so say, for example, I just know some people, they have their business, their exit strategy is their children, they're going to be taking over the business. A.J. 23:37 Are the but are the mom and dad still going to be in the business? Sharon 23:40 Still in the business. Like, huge, right? That would be horrible to have a family falling out. That would be horrible. Like, you got to have that written, like, that's, yeah… A.J. 23:52 You must, and people think, and I get it. It's that people think—well, they're family, it'll be okay. No, it's not going to be okay necessarily, right? My experience with five brothers is—I can… yes. So anyway, yes, if you've got family involved, even more so family or friends even more so do we need… Sharon 24:15 So what's a like? What is a typical discussion that could happen before you join a partnership or you bring in your siblings to the event. What's a simple legal discussion that you should have before you go to the lawyer? A.J. 24:30 Oh, well, I talk about those, those four things, the four Ds. Yeah, what is going to happen in the event that you die? What? What do we have? Do we have life insurance in place? Do we have enough money in the kitty to pay out your estate? What happens if you become disabled, and disablement or disability is not… I mean, you might still be able to operate the business if you've been physically disabled. It might not necessarily work if there's mental incapacity. So think about that, right? Think about divorce. Lovely, divorce. What happens with your shares? The person that shareholder shares, sorry, the shareholder in the company, what happens with their shares on divorce? Because suddenly they can become part of the matrimonial property. And then the big one, which comes up a lot, is—I'm done with you. I don't want to be your partner anymore in this corporation. We can't… there's irreconcilable differences. We got to separate or somebody's going to… something serious is gonna happen, right? So I know that sounds like fairly heavy stuff when you're first… Sharon 25:45 Yes, when you're in the marriage area or the honeymoon stage that you mentioned. A.J. 25:51 Yeah, it's pretty heavy duty, but it's crucial, crucial, crucial. Sharon 25:56 So you analyze all that. So is that something if a customer, or if a client of yours starting up a business, is that part of the discussion that you offer with them? Or do they have come up with the stuff on their own? Is that something that you kind of mentor through? A.J. 26:10 Yes, I feel that it's the lawyer's responsibility to say, okay, Mary, Bobby and Susie, you're going to start this business up. Great idea. We've crossed all the T's and dotted the I's. It makes sense to incorporate Now, let's talk about this. And what does this look like? Because Sharon, everybody that you talk to has heard about these horror stories where businesses have gone…you know, there's something that's happened and it's annihilated the business. It's the end of the business, essentially, right? Sharon 26:48 Yeah, yeah. I'm, what do you call that? 100% shareholder, and I think a lot of is just because I'm scared. I would hate to go down that road and have that conflict. Yeah? Okay, let's move on to something more exciting. Exit strategy. And I say it's more exciting because I'm 56 so let's learn some stuff. A.J. 27:09 Okay, okay, business owners start preparing years, right, before exit strategy. How many years am I supposed to be preparing? What am I preparing? Help me A.J. A.J. 27:17 Well, again, I… you need to figure out… one of the very first things…if a client comes to me and says, A.J., you know what? I'm thinking about this, I'm going to sell or I'm going to wind up—tax. What does it look like from a tax perspective? Right? Sharon 27:38 Tax? I have to worry more about tax. I pay tax for my whole… A.J. 27:44 You do. You don't want to be… you don't want to have this wonderful sale happening, sale of the business happening, and you find out, “Oh, my goodness, I didn't realize there was going to be this much tax owing, right?” So talk to the accountant. Another really important aspect, when you're thinking about selling—are you selling your… so if it is a corporation that's selling, are you selling your assets, or are you selling your shares? Yes. So, right? It's really important from a seller's perspective, typically, and I'm not… this isn't all 100% across the board, but typically it from a tax perspective, it makes sense to sell your shares. Here you go, new owner. Here's everything. Have fun. Have at it. From a purchaser's perspective, typically, they just want to buy the assets. They don't want the skeletons, the potential skeletons in the closet come along with the shares, right? And I don't think I'm out of line to say that it's from a purchaser's perspective, it makes sense, from a tax perspective, to buy the assets, just the assets. Okay, so Sharon, let's talk about your corporation as an example. Okay, so you would like to be probably selling your shares. I've built up this great business here, and I'm going to sell it to Jimmy and Martha. And it makes sense, you've had your discussion with the accountant, and it makes sense to sell your shares. Well, Jimmy and Martha have probably, hopefully, they've had their meeting with their accountant and their lawyer and their accountant says, Well, no, Jimmy and Martha, it makes more sense for you to purchase the assets, right? And that's a negotiating point. And it always, it always works itself out. There's a give and take, right? If somebody says, “Nope, I gotta just, I'm just buying the assets. This business is 40 years old, and I don't want the skeletons in the closet, right? I want your embroidery machines, your… everything else that comes along with this, but I don't want to buy the shares.” Really important, really, really important to figure that. Sharon 30:19 So do I give it to them and say, okay. A.J. 30:23 No don't give up… Sharon 30:28 What am I supposefd to do…they don’t want to buy my shares. So now what… go to the next person? Go to next… A.J. 30:32 No, no, no, but continue the discussion with the accountant to say, “Okay, accountant, Jimmy and Martha don't want to buy my shares. What does that look like from a tax perspective? How much am I going to… how much more tax am I going to pay by selling the assets, right, versus the shares? So don't just give in okay. But I mean, lot of times Sharon, it's a negotiation. Okay, “If you must have the assets, then we're going to bump up price a little bit, right,” or something like that. Sharon 31:10 Okay, so, okay, I know it's not on our cheat sheet, but how do you calculate shares? A.J. 31:14 The value of the shares. Sharon 31:19 Is that the value of the shares? Yeah, go to the accountant for that. Okay, so like, if I have 80% of the shares, say, if it's a split corporation, okay, somebody can sell just their shares, right, to get out if they if they need the exit strategy. A.J. 31:33 Ah, good point, good point. Sharon 31:33 And that is right. Is that a thing? A.J. 31:36 It is. So let's take your example of the 80/20 Okay, so you own 80% and somebody else owns 20% of the shares. Your unanimous shareholders agreement, hopefully, if it's done properly, is going to say, whoa, whoa, whoa, the person that wants to get out cannot just go sell it to Jimmy Smith on the street. That it has to be, there has to be a consensus among the current shareholders, right? Because maybe your 20% shareholder, your partner, doesn't want, maybe he or she wants your 80% right? So hopefully that's been covered off in the unanimous shareholders agreement, right? Because you're gonna… then you're going to cause friction. If you don't, if you just go, I'm going to forget about you 20% shareholder, and I'm going to go give it to, or sell it to somebody else. Oh, there's going to be problems. Sharon 32:36 And it's going to be a right fit, like, it's going to be almost like a marriage, right? That's going to be the right… A.J. 32:40 It's got to be the right fit. Has to be the right fit. So yes, from probably the way that you start, but when it becomes… Sharon 32:50 Well, I've been 18 years and I haven't been preparing, so help me here. A.J. 32:55 Think about it. But yeah, what are you going to do if you sell right? Yeah, that's the biggest, one of the biggest problems, what do we, what do you do? Right? Do you go something else? What are you going to do to occupy yourself? And that's not necessarily a legal question, but really important to think about it. And I also really, really want to make the point that if you're going to sell, and this is something that happens quite a bit in recent years, you're going to sell your embroidery, your business, but the buyers say, Sharon, you're so good at this, and you've built up this somewhat, this much goodwill, and we want you to stay here. We want you to stay here for the next two years, or one year or six months. The person that's selling Sharon, I can't stress this enough, you have to think about that, because I've been through situations where that's what the scenario is—the purchasers say, “You're so good at this, seller, that we want you to stay here and help us run it.” Great. But guess what? You're not the one in charge anymore, and that can be very hard to digest, right? When you come to work and you've been doing something this way, this way, this way, and suddenly it's not done that way anymore, and they're changing this, and you would think… I would never change that. It's worked perfectly, right? There's no easy answer to that, but I just… the more that I do this, the more that I stress to my clients, when they're in that position, you better have a good, long, hard think about this, because you're probably not gonna like what the new owners are doing to your baby. Sharon 34:49 And that's probably a legal document that you sign saying you will stay. Is that correct? Exactly? It's not like, Oh, sure, I'll do that for you. Like, it's not like a verbal it's always signed. A.J. 34.57 It should be. Sharon 35:00 Yeah, okay, yikes. So what are the first legal steps, as far as legal steps? So what… I'm going to sell in, say, three years, five years, what's my first step? A.J. 35:10 Yeah, start talking. I can't stress it enough. Start talking to your accountant. What does this look like? Is it better to do a share sale and asset sale. What are the tax ramifications to both? Who are, who's your target? Who are you… do you have somebody in mind that you're going to, you know, say, “Hey, do you want to buy this?” or are you going to put it on open market for sale? Sharon 35:35 Marketplace on Facebook. A.J. 35:39 It's happened before Sharon, it's happened. So I'm not sure that there's any real, you know, methodical approaches or steps you need to take. One. I'm just saying that if you sell, okay, if you decide, okay, I'm gonna sell, don't just go ahead and do this without consulting, right? Because there's so many mistakes that can happen, and then it's after the fact. And you're thinking—why did I do this? Because I thought right to have this much money, and now I don't have that much money, or I'm now, you know, helping the new owners for six months. And I hate it, because they're doing everything wrong, not that they are doing everything wrong. They're just… Yeah. Sharon 36:26 So first step, accountant, yes. Next Step. Get your ducks in a row. Figure out what you want to do in your future. I'm going to retire in Arizona, I think… so say if I go to do that. So these are my goals. I have three years. I gave myself three years time—go to the accountant, figure out what I'm going to do. So do I come to the lawyer before I find a purchaser or after I find a purchaser? A.J. 36:52 I would say, Sharon, it goes back to our earlier comments. If you've made the decision, I think it should be a discussion between you, your lawyer, and your accountant, because it's amazing what can come out of that discussion, right? Three-way discussion. Sharon 37:12 Three-way Zoom call. Got it. Love it. I learned so much off of that whole conversation. Okay, what happens about transferring to a family member? Is there any difference there? A.J. 37:21 No, and don't pretend. Don't pretend that there is, because people pretend that there is and there isn't anything different. Yeah, my approach is, whether it's arm's length or non arm's length, the same rules have to apply, Sharon 37:37 Okay? So follow the legal legalities. A.J. 37:40 You're going to get yourself into trouble if you don't, because yeah, the mom and dad are going to say, “Oh, Johnny, you want to take this thing over?” And Johnny says, “Sure.” And the first thing that happens, and this is just pretend, it's make believe, but anyway, first thing that happens is, Johnny can't make the first monthly installment, and Johnny thinks—well, it's my mom and dad. I don't really have to make that first monthly installment, and yes, and it goes on from there, right? So whether it's third party or family member, you gotta go… same paperwork, absolutely. Sharon 38:22 Same paperwork. Okay, what happens if it's… times not sellable and I just have to close it? What do I need to do then? Okay, really, good point. How do I know it's not sellable? I just assume it's not sellable because I don't have any buyers on marketplace. Like, what's the… or maybe, like, what are the avenues for that? Like, what do I do? A.J. 38:39 Yeah, okay, so it's clear you've reached the end of your rope. You can't take this anymore. You're not prepared to carry on with the business. You've advertised, you've begged, you've done whatever you want… you can… to get this thing sold, and it doesn't sell. Then there the proper way to go about this Sharon would be to dissolve. Dissolve. Now, this is important, very important. If you… now by dissolving, that means it's time is no longer on corporate registries records, it has been issued a certificate of disillusion. You're done, right? But the trick with dissolving, is that you, as the sole director/shareholder/officer, have to sign, it's not a declaration, it's not a sworn statement, but it's a statement saying “It's Time Promotion has no assets or liabilities.” And, I mean, that's pretty difficult to do, if right… so, you know, you just have to carry on and get the assets sold as best as you can. Like there's no magic to that, but you can't properly dissolve without that statement saying… because corporate registry says—if you're going to dissolve, you need to give us that statement. Sharon 40:09 Okay, so I have to rapid sell everything. I have to have zero assets, zero, before I can dissolve. A.J. 40:16 That's right, zero assets and zero liabilities. You're at zero. Sharon 43:21 So all my people have to be paid. A.J. 43:32 Yes, people, everything, everything, everything… Sharon 40:26 My books have to show zero. Okay, so is there anything that they need to go to a lawyer before selling their assets? Or maybe just some guidance on how to dissolve it probably? Would you suggest that? A.J. 40:37 Well, I think again, you're going to need to… the accountant is going to be able to tell you, Okay, if you have to have a fire sale, this is what it's going to look like from a tax perspective. But, I mean, yeah, I can't I… There's no magic to it. It's just, you know, again, have a discussion. If you're coming into that situation, Sharon, and you think—I can't get this thing sold, again, go and have a discussion with your accountant and your lawyer. Okay, what are some options here? Have you tried this? Have you tried Facebook Marketplace? Have you tried the…? Have you tried whatever else you can't force somebody to buy Right, right? And some people just stick it out. They just, they just, you know, pare down their business and keep trying, keep trying to get it sold. And if it doesn't work, then close the doors, which isn't attractive, but… Sharon 41:35 I've even seen people that just keep going because they… but they're tired. Yeah, do you know? Like it's sad when some people they can't retire because they don't have a business that's sellable. And which brings me to my next question for you—is the value and the stability of a business like, so I think having the proper and correct me if I'm wrong, the correct contracts, the financials, the corporate records, having that all that up to date, all that accountable, will help? Am I correct? Or how could people work on that to help them sell a business? A.J. 42:09 Yes, Sharon and my note, my point about a note that I was making earlier is, minute book, minute book, minute minute book, right. Keep it up to date. Your minute book, really, all the resolutions that we send you every year, Sharon, right, your directors and your shareholders resolution. Get those things signed, get them back to the lawyer so that they can go into the minute book. Because your minute book is crucial. It is the bible for your corporation, right? If you are going to go and say you have an interested buyer, and you and the buyer's lawyer says, “Sure, we've signed an NDA, everything's happy. Let's start our due diligence.” One of the very first points is they get to have a look at your minute book. And if your minute book consists of two pages of moldy garbage, and you're a twenty year business, it's not going to be very attractive, and the lawyer and accountant, acting on behalf of the purchaser is going to say, “This is not good, right?” Because all of that material has to be either recreated or… because the lawyer is going to be saying, “Buyer, don't you dare touch this with a 10 foot pole, right? Unless it's going to be an asset sale, because then you don't care what happened in a book, right?” Sharon 43:37 But I get those silly papers from you in the mail, yeah, and I just see legal gibberish. I just sign like I'm supposed to. I didn't even think it was important. In fact, I have to confess. I have to confess something. I sent back my 2024 because you sent it to me in an envelope which hardly ever gets opened by me anymore. But anyways, and I signed it and sent it back. So your team phoned me and said, “Sharon, thank you for dropping that off, but you're missing ‘22 and ‘23.” “I haven't signed those yet.” I'm like, “Well, where are they?” And she goes, “Well, we sent them to you, so they're probably in an envelope in your desk.” I said, “Well, I hope I paid the damn bill. Like, did I pay the bill?” She goes, yeah, the bills paid.” I'm like, “Oh, my goodness gracious.” So your team, thank you for that, because that's something that's easily overlooked. It just looks like a pile of gibberish. So it's really super important. Honestly… A.J. 44:21 I can't stress that enough. And the other reason that it's important Sharon is for our friends at CRA. So if CRA comes in and says, “Huh, we want to do an audit on It's Time Promotion, and they'll go to your accountant's office, and the accountant is going to say, “Send over the minute book,” if we can provide them with a fully, properly up to date minute book, that is huge, huge. Sharon 44:51 I'll be down this afternoon to sign those two. A.J. 44:54 So, and Sharon, I have to say something to, in defence, because, believe me, you're not the only client that tells us this—we are trying to get better, and I am hateful of DocuSign, but because people, I don't think people pay attention to it, but nonetheless, we have to get better and send those resolutions out so they can be DocuSigned, because it is a little bit antiquated, I suppose to have to mail things out and mail it back… Sharon 45:20 So fast. So life is changing. Hey, like I… it's so crazy. A.J. 45:25 So that's part of the problem there is me, because I'm saying we're not doing that, but we will try. We're trying to get better at that. Sharon 45:34 Well, that's okay. I'll be down. I'll get that signed. I promise. Your team was amazing, and they did remind me. So thank you for that. Okay, success stories. Let's share any, maybe what's really happening, what somebody started off their business, they did something absolutely right, and how did that make their business grow from there, tell me a cool story. Do you have a cool story to share? Or opposite? A.J. 45:59 I mean, I think the cool ones are, the ones that come to mind are the business owners that have been completely engaged throughout the process. They're on top of what's going on in their business, whether it's a… you know them, or they've got four or five share, partner shareholders, it doesn't make any difference. They're engaged. They know what's happening in their business. They're not leaving it to chance. They're not leaving it… to oh my bookkeeper, like this kind of flies in the face we talked about earlier, because you have to rely on your bookkeeper. But the successful ones are engaged right from the outset. Know what's happening in their business. They've kept their minute book up to date. They have things, you know, when the due diligence checklist comes out at the time of sale, it's easy. They've got everything ready to go. And it's easy. Sharon 47:02 Have you ever worked with somebody that had to split because of a reconcile in differences and the paperwork saved them? Have you ever had that experience? A.J. 47:11 Oh, yes, yeah, the USA was properly drawn up. And, you know, there's hard feelings, but we this, it's… and it's still not easy. It's not an easy pill to swallow. Or if you've been together as a business partner for 10 years, 5 years, 15 years, but at least, look at you guys, or you girls, this is what we agreed to. Sharon 47:34 There's no pointing fingers. It's just the way it is. A.J. 47:38 Just the way it is. You guys can come up with a different exit. you guys come up with a different plan, right? You can say, “No, I want to do this, or I want to do that.” Great, but if you don't, this is what we have to follow, and you've agreed upon this right at the outset. And Sharon, that's a really good point, because and lawyers probably aren't the best at this once we get the USA signed at the outset, we're not probably the best unless we meet with the clients regularly, but your USA should be looked at, right? Okay? Five years down the track, things may have changed. Does still want the same roadmap out as you did when you started, right 10. Gotcha contract. Does it still look the same? Because it won't. Sharon 48:30 Interesting, because sometimes you just file those documents, we leave them with you in your fancy filing cabinets, and that's the end of it. A.J. 48:36 Yes, yes, but don't let it be. I'm not saying it's fatal if you do, I'm not saying it's fatal. And maybe it's over the top to say that you should be looking at this. I don't know. I think it's something like your will. You should be looking at it every three to five years, right? Things change, right? Sharon 48:53 Absolutely. Okay. We're gonna wrap up here quick for us. What's one piece of legal advice every entrepreneur should know. A.J. 49:01 I… one piece of legal advice. I'm not sure this is legal advice, but I'm going to repeat what I said before. Do what you are good at, and don't try and be a one man band, right. Get help along the way with the aspects of the business that you're not the expert in. And if you're going to… I sound like a school teacher here, but if you're going to incorporate, or I can't stress it enough, consult with your accountant and your lawyer before you start a business. Don't listen to your buddies that are saying, “Oh, you don't need to incorporate because of x, y, z, or you should be incorporating because of ABC.” Get some legal advice and solid accounting advice, because it'll save you in the long run. Sharon 49:50 Yeah, no difference in buying stocks. Don't listen to your friend. Do your own research. Figure it out. Okay, gotcha. Okay. So I think… is there anything you need to add for me? Concept that we missed. A.J.? A.J. 50:01 No, I got my little comment in about the minute books. Keep your minute books up to date. Please, please, please. Yeah, no, I think we're good. Sharon 50:09 Okay, well, what I picked up was very beneficial, and it was one of my questions. But I'm just gonna elaborate. So I'm gonna be a question because you told us you can, so you can reach out. I'm gonna be doing that. I'm going to be hooking you up with my accountant, Shireen, and you're going to get to meet her. She's an amazing lady. And my banker, Heather, so I am definitely going to be doing that, because I think that's a huge win. My key takeaway from this whole event, so I'm hoping our listeners picked up some other stuff, and paperwork is your friend. Make sure you have those, that stuff documented. Yes, and I would not have thought that my Minute Book was important, so that was definitely a win for me. I just thought it was legal gibberish, and didn't really care too much about it. So thank you for that, (You're not the only not the only one). So yes, thank you for that, and I really appreciate you taking your time, it's been an hour out of your day, and I know you're a busy woman, so just so you know I appreciate you, and I hope our listeners appreciate you, and just through an introduction. A.J., Fox from Fox Wakefield, they can reach out to you if they needed a lawyer, they can reach out to you. Thank you. A.J., for being with us today. 51:13 Thanks so much. Sharon, great discussion. Thank you.