Expanding Your Business into the United States

July 27, 2011
Vancouver

For many businesses in Canada expansion into the US is part of the natural growth curve. For number of reasons: customers and suppliers are close; or markets are potentially very large there many opportunities to save on overhead costs and attractive tax rates. Other factors such as access to US public markets and immigration can also be important considerations.

This is a big step for many Canadian companies and careful consideration to the business structure should be undertaken. For many businesses in Canada expansion into the US is part of the natural growth curve. For number of reasons: customers and suppliers are close; or markets are potentially very large there many opportunities to save on overhead costs and attractive tax rates. Other factors such as access to US public markets and immigration can also be important considerations.

This is a big step for many Canadian companies and careful consideration to the business structure should be undertaken. There are number alternative ways Canadian businesses can access customers in the United States including the following:

• Establish a branch office in the United States;
• hire US-based employee to sell the company’s products;
• enter into a strategic alliance with a US-based business;
• hiring agent or distribution company to sell the company’s products;
• use technology like the Internet to reach US customers but refrain from having any physical presence in the US
• Establish an entirely new US Corporation is a subsidiary;
• purchase an existing US company

In each of these alternatives has significant tax and business implications which should be discussed with your professional advisors.

To be continued…

Charles Rendina is a lawyer
Licensed to practice law in British Columbia and Washington
Practicing at Norton Stewart Business Lawyers 1600 – 1055 Burrard St Box 11104
Vancouver, BC Canada V7E 3P3
crendina@nortonsewart.com
www.wespeakcanadian.com

National Energy Board Approves Horn River Pipeline

Vancouver
When I was in junior high school I had a social studies teacher, Mr. Francis. He was a short dark troll of a man. He was a Republican, a Bostonian and flagrant believer in the ascendancy of the United States.
One morning he presented the class with a picture on the chalkboard of his view of the ideal North America. Along the border between Canada and the U.S., on the Canadian side, he had drawn a series of nuclear power plants, dams and pipelines. He drew a cow’s head over Nova Scotia and a tail connecting Vancouver Island to the mainland. He crossed out the name Canada and replaced it with “America’s Energy Cow”. It sparked some debate. There were liberals in the room. Francis insisted it was inevitable and answered his detractors comments by mooing at them.
For some reason this image came to mind today when I read Reasons for Decision in the matter of NOVA Gas Transmission Ltd. published by the National Energy Board of Canada The Board approved The Horn River shale gas pipeline e which will transport natural gas 100 miles from the interior of British Columbia to the border with Alberta. There it will join with a gathering system in Alberta to be distributed to United States and Canada.
This is either a boon to the northern communities and aboriginal nations who will share in the work of building the pipeline or an environmental tragedy depending upon one’s point of view. The Board tried to strike a balance between competing interests. It builds in protection for wetlands, birds and caribou. It mandates assessment to environmental and socioeconomic impacts and the imposition of mitigation. The estimated cost will be $311 million. The project will cover approximately one million acres of wilderness.
Somewhere Mr. Francis’s ghost is mooing

Canada Changing Stock Option Tax Treatment

December 9,2010

The good folks at Valiant Trust sent this alert to me this morning and I think it is worth passing along.

Beginning January 1, 2011, subject to the passing of Bill C-47, several significant changes to the tax treatment of employee stock options will take place. Among the changes is a requirement for corporations to deduct and remit withholding tax on virtually all stock option exercises. Stock option plans and procedures should be reviewed to ensure compliance with the new rules.

Canada Moves Closer to International Financial Reporting Standards

In a new release, BCN 2010/28, the British Columbia Securities Commission confirmed its commitiment to IFRS which will be phased in effective January 1, 2011.
read the notice here:

http://www.bcsc.bc.ca/policy.aspx?id=10800&cat=BC%20Notices

Dodd-Frank Just Keeps on Rolling

Effective September 29, 2010, the Securities and Exchange Commission,(SEC) in response to Section 939B of the Dodd-Frank Act released a final rule that amends Regulation FD “to remove the specific exemption … for disclosures made to nationally recognized statistical rating organizations and credit rating agencies for the purpose of determining or monitoring credit ratings.’ The Dodd-Frank Act, required the SEC to remove this exemption within 90 days of the date of enactment.
When the amendment becomes effective Rule 100(b)(2)(iii) of Regulation FD will be deleted and Rule 100(b)(2)(iv) will be re-designated as Rule 100(b)(2)(iii).
The release can be found here: http://sec.gov/rules/final/2010/33-9146.pdf

Why Invest in Canada?

On Juy 30, 2010 the Vancouver Sun published an article by Harvey Enchin and Fazil Mihlar that contained some interesting statistics that I thought were worth sharing.  

I have not checked the statistics or reviewed  source material.  But assuming these facts are accurate the case for U.S. Investors and business to consider Canada is compelling.

Canada’s banking system is sound.  The credit crisis and recession that ravaged US financial institutions caused barely a ripple at Canada’s banks…. the World Economic Forum’s Global Competitiveness Report ranked Canada’s banking system number one in the world, ahead of Switzerland and Hong Kong.

Canada’s federal personal income tax rates are lower than those in the US.  The US rate on income between 34,000 US and 82,000 US for example is 25%.  In Canada the rate on income between 40,970 and 81,941 is 22% on income from between 171,850 US two $373,656 US the US rate is 33%.  Canada’s rate reaches and maximum of 29% for all income over $127,021

 … most of Canada’s provinces and territories impose personal income tax as well, but so too do many US states and some municipalities.  It is true that Canada obtains a slightly more personal income tax revenue per capita than the US does $5,800 US versus $4700 US.

 Lower capital gains tax rates.  Canadians pay tax on 50% of their capital gains at their marginal rate.  On a gain of $1000, for instance, only $500 would be subject to tax.  At a combined Federal-provincial rate of, say 35%, the tax payable would be $175.  Americans pay tax on the net total of capital gains…. it is expected that… in 2011… on the same $1000 capital gain an American investor would pay $280.

 … the US national debt is $13.6 trillion US, or $42,942 US per capita.  Canada’s is $534.7 billion, or $15,715 per capita.

 The ratio of debt to gross domestic product stands at about 93% in the US,… Canada debt to GDP ratio is 33%.

 In Canada, health care is paid for mainly by employees through their income taxes.  In the US, most companies pay for health benefits for their full-time employees.

 About 70% of all health care related spending is financed by the Canadian government, while the US government covers about 46%.  Yet the US government spends more on health care than the Canadian government does 14.6% of GDP in the US compared with 10% in Canada…. that translates into higher health-care spending per capita-$6,714 US in the US vs.  $3678 US in Canada

 

Good News for Smaller Reporting Companies

 Vancouver 4Aug2010

One of the results of the Dodd-Fank Wall Street Reform and Consumer Protection Act which (those with less than 75 million in market capitalization) from the section 404 (b) of the Sarbanes-Oxley Act of 2002 and requirement to obtain a costly external audit of the effectiveness of their internal financial reporting controls. Management is still required to report on their internal controls over financial reporting pursuant to section 404 (a).

NOTICE TO ISSUERS CURRENTLY ENGAGED IN PRIVATE PLACEMENTS

July 21, 2010 Vancouver

New Act Changes Accredited Investor New Worth Test: Excludes Value of Residence

On July 15, 2019 the Senate approved the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Bill, signed by President Obama today, has the immediate effect of changing the definition of accredited investor as it applies to Regulation D of the Securities Act of 1933. By excluding the value of an investors residence from the definition the group of potential accredited investors will be drastically reduced.

Issuers routinely rely on rules 505 and 506 of  Regulation D under the Securities Act. Regulation 505 allows issuers in a 12 month period to raise up to $5 million from a an unlimited number of accredited investors and also to include 35 non-accredited investors.  506 allows issuers to raise unlimited capital from an unlimited number of accredited investors had also allows 35 additional sophisticated purchasers.

Rule 501 (a) of Regulation D has traditionally defined accredited investors who are natural persons as follows:

            -           (an individual) whose net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1 million; or

            -           pool and an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the next year.

Under the existing rule the value of a subscriber’s primary residence could be included in the calculation of the investor’s net worth.

The exclusion of investor’s primary residence now aligns with the U.S. Act with the practice in Canada.

The new definition will come into effect immediately. Issuers and counsel, involved in private placements in United States should review subscription agreements and other materials including representations from potential investors as to their net worth.

Further changes and reviews of the definition of Accredited Investor are mandated in the first third and fourth anniversary of enactment.

SEC New Concept Release On U.S. Proxy System

U.S. Securities and Exchange Commission is soliciting comments on the U.S. proxy system.
To read the release go here:

http://www.sec.gov/rules/concept/2010/34-62495.pdf

So Much Can Turn on a Phrase

  

Vancouver 

I can’t think of how many times my commercial clients have referred to carefully crafted contracts as “boilerplate” usually in the context of asking for a shorter agreement. 

 E. Jan Sidnell and Christopher p. Knight of Fraser Milner Casgrain LLP just published an excellent article on some phrases commonly found in contracts. They analyze the difference between terms “best efforts”, reasonable efforts”, and “commercially reasonable efforts” 

Here is a link to the article 

http://www.lexology.com/library/detail.aspx?g=6a4c20dc-594d-4756-b710-7a2dc213e8c0&utm_source=Lexology%20Daily%20Newsfeed&utm_medium=Email&utm_campaign=Lexology%20subscriber%20daily%20feed&utm_content=Lexology%20Daily%20Newsfeed%202010-06-15&utm_term= 

They review the case law from a Canadian perspective and it’s a great reminder to anyone signing a contract to pay careful attention to all the words.