Corpcentre's Blog

September 24, 2009

Shareholders Determine Executive Compensation

It’s commonly known as say-on-pay policy. In the United Kingdom and the Netherlands, say-on-pay is mandatory. Now, as Canadians desire to be viewed as doing the right thing, say-on-pay will become policy at 13 Canadian corporations beginning next year.

Say-on-pay, although sounding like the name of a children’s game, is by no means a game. It is a system whereby the shareholders of a corporation get to vote on executive compensation packages. Although the policy is merely advisory, it is by no means to be taken lightly. The board of directors is not obligated to follow the express directives of the shareholders. However, the vote by the shareholders – whether to increase top executive compensation, decrease executive pay, or leave it as is – can send a clear message to the board members.

In countries that regularly implement a say-on-pay policy, top company executives invest a good deal of effort to court shareholder votes. While they certainly have a vested interest in the outcome, the important factor is the open lines of communication between shareholders and corporation management. Regular discussion between the investors and operations is extremely important. The goal behind encouraging shareholders’ input is to break down the barrier that currently exists and allow management to understand how their investors view the company’s performance.

In an effort to encourage widespread acceptance of the say-on-pay policy, the Canadian Coalition for Good Governance is working on a model policy for boards to implement, including the wording of the actual resolution put to shareholders. As shareholders are likely to vote based on overall feelings and ignore the specifics, the Coalition hopes that the wording of their resolution will help shareholders focus their thoughts.

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September 9, 2009

To Buy the Competitor or Not to Buy

Although the state of the economy is still uncertain, this should not affect whether a company should pursue acquisition of a competitor, if that is its intent. Rather, one should be somewhat more prudent and disciplined in how one evaluates the potential purchase.

During these recent difficult times, the markets have naturally focused their attention on companies in distress. This should not translate into a belief that the entire business sector is in ruins. However, as the competition may be in dire straits due to the present financial crisis should not be a reason to abandon ideas of purchasing that company. Careful assessment of the competitor is crucial. Seek to understand why that company is losing money. Will your investment merely save a struggling enterprise that was on its way to closure anyway or are there other factors at play that will make this a worthwhile purchase?

It is important to dissect the company and understand how it works. Were there management problems? Did the company mismanage its relationships with its customers and suppliers? Were the employees mistreated and, therefore, did they not perform well? Is the machinery sub-standard, thus affecting the product? Examining the company with a fine-toothed comb will allow you to make an effective decision as to whether this company can merge with yours. Similarly, it is important to do a proper evaluation of your own company. Are you in a position to absorb this company? Do you have the management capabilities for this merge? Will your staff cope with the additional production and sales? Will you need capital to overhaul machinery? Similarly, examine your goals. Perhaps you are only interested in expanding your customer base. In that case, go directly to the competitor’s customers, rather than affecting a buyout.

Research is your best business ally.

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September 8, 2009

Cyber-Shopping Anyone?

In a country that is so highly attached to Internet access and the latest high-tech gadgetry, Canadians are slow to adopt the trend of cyber-shopping – shopping online. Online sales have certainly been growing at a steady pace – a 61% rise in three years – but they still lag behind online sales in the United States.

Analysts attribute Canadian reluctance to become cyber-shoppers to several factors. High shipping costs in Canada have caused a large number of shoppers to abandon their online purchase before completing the transaction. Additionally, when it comes to security, Canadians are far more sensitive than most other nations around the world. Simply put, many Canadians have an abiding fear of credit card fraud and are skeptical about revealing their credit card details online.

On the other hand, the rise of specialty brands online is winning over Canadian reluctance. The allure of securing hard-to-get brands or one-of-a-kind items has been a boon for many online retailers.

Some of the nation’s larger retail outlets use their websites primarily for marketing and rely upon their sites to attract buyers to their stores. This has allowed a market to open up for smaller retailers whose “primary store” is located on the Internet.

Consumers still expect top service wherever they buy. For online stores, this translates into speedy and affordable delivery as well as reliable customer service. Moreover, online stores must market their sites in a variety of ways if they are to be noticed.

The variables of the economy affect the online stores as much as traditional shopping outlets. When consumers are in a spending mood, they are more likely to shop for items online that may be frivolous or unnecessary. However, when belt tightening begins, online retailers have to rapidly shift their focus to marketing items that are more affordable.

With annual sales in excess of $15 billion, and growing, cyber-sales seem to have carved out a niche with the Canadian consumer.

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August 16, 2009

Knowing the Value of Your Business

Filed under: business registration,Business valuator,Canadian economy — corpcentre @ 6:28 pm

All too often, business owners will plan their retirement and estate based on their own personal valuation of their business. After all, could there be anyone more qualified than the owner to truly know how much the business is worth? The answer, surprisingly, is a resounding yes. According to experts, a business owner’s self appraisal and evaluation of his company will generally be well off the mark on the high side. Business owners will allow their emotional and personal attachments to the business override their objective opinions, thus producing end results that may be quite inaccurate.

The best course of action is to retain a professional valuator. The valuator – generally an accountant – will work the numbers and forecast accurately. Objectivity is essential. The owner will look at where he has been and what he has accomplished. The valuator can take all the facts and figures and see where the business will be. For example, a valuator may conclude that the business is the life’s work of an individual and the owner is the company. Remove him from the picture and the value of the company will plummet. This is often the case with small businesses. On the other hand, a larger business with multiple shareholders may have developed a succession plan. In this instance, the valuator will clearly see that a working plan is in order to allow the business to continue, even after the owner is no longer in the picture.

It is important to note, though, that business valuation is an art, not a science. Two valuators can arrive at different conclusions for the same business. The reason is that the valuator must make future predictions based on the present numbers. There is always a possible margin of error.

Be that as it may, a professional business valuation is an excellent tool to help business owners assess their company’s worth with no emotional strings attached.

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July 17, 2009

Ontario or Canadian Incorporation – Where to incorporate?

Filed under: business registration,incorporate ontario incorporation — corpcentre @ 5:18 pm

We often get this question – I am based in Ontario and want to incorporate my business but don’t know if I should incorporate a Federal or Ontario corporation – where should I incorporate?

Deciding where to incorporate involves many factors including evaluating corporate and tax laws. A competent lawyer/accountant should be consulted to evaluate your specific circumstances. However, for most small corporations the following factors make Federal (Canada) corporations more attractive – read below. You can also check out this video about incorporations for more information.

Federal corporations have lower government incorporation fees than Ontario corporations ($200 versus $360). Also, although Federal corporations must register extra-provincially with the Ontario government, there is no government fee for this registration.

Federal corporations have the most stringent criteria in granting the right to use a corporate name. Ontario corporations (like most other provinces) offer very little protection of use, and will grant almost any name provided it is not identical. Moreover, if there is any protection, it is limited to that province, unlike federal corporations which afford Canada wide protection.

Federal corporations require that 25% of its directors be resident Canadians, while Ontario corporations require 51% be resident Canadians. This may be advantageous if you have foreigners involved in your business.

Delays for both are approximately the same where Certificates of Incorporation can generally be obtained within 2 working days or less.

However, Federal corporations must file annual reports at a cost of $20 per year whereas Ontario corporations’ annual reports are free.

You can check out our pre-incorporation checklist for Ontario incorporations. For a more detailed answer check out this link about where to incorporate in Canada.

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