Incorporating a paving or concrete company: liability, equipment and structure

Why the corporation comes early in this trade

A sole proprietor running a paver on a public road, pouring a foundation wall or sending a tri-axle down Highway 410 is carrying the whole risk personally. Incorporating puts the operating risk in a separate legal person, so a claim that exceeds insurance does not reach the house. That protection is not total — directors remain personally liable for unremitted source deductions and HST, lenders ask for personal guarantees on equipment loans, and WSIB obligations follow the directors — but it changes the downside from everything to something.

The tax case is just as practical. Profit left inside an Ontario corporation is taxed at the small business rate on the first $500,000 of active income, and the difference between that and personal rates is the down payment on the next machine. Municipal vendor registration, bonding programs and equipment lenders all read corporate statements more easily than a T2125. If you are weighing whether to incorporate in Ontario, in this trade the answer usually turns on how much iron you own and how much profit you can leave in the company.

Moving the pavers, trucks and forms you already own

Most paving and concrete owners incorporate after several seasons, which means the corporation needs equipment a proprietorship already owns. Selling it to the company at fair market value would trigger recapture on everything that has been depreciated, so instead we use a section 85 rollover: the equipment transfers at an elected amount between its tax cost and its fair market value, the election is filed on Form T2057, and the corporation issues shares, and often a promissory note, in exchange. The HST side is handled with the section 167 election when substantially all of the business's assets move together, so no tax is charged on the transfer.

The practical list is longer than the tax list. Equipment loans need the lender's consent to move to the corporation, and the corporation usually signs a new agreement with your guarantee behind it. Vehicle registrations, plates and the CVOR certificate for trucks over 4,500 kg must be in the corporation's name. Insurance — commercial general liability, the contractor's equipment floater and the fleet policy — is rewritten. The WSIB account, the CRA payroll account and any municipal pre-qualifications are opened under the new business number, and supplier credit with the plant and the ready-mix yard is reopened. We run that transition as a checklist across the off-season so the first spring invoice goes out under the right name.

One company or two? The equipment-holding question

Once the fleet is worth more than the operating company could afford to lose, many contractors hold it in a separate corporation that leases it to the operating company. The operating company carries the crews, the contracts and the liability; the equipment company owns the machines. It is a real structure with real costs, and it is not for everyone.

For a single owner with two trucks and a skid steer, the second company is usually overhead. For partners with a paving crew, a concrete crew and a fleet worth more than a year's revenue, it is often worth it. We size the structure to the business and revisit it when the fleet or the partner group changes.

Partners, shareholders' agreements and the first ninety days

Paving and concrete companies are often started by two or three people who each bring a skill and a machine, and the shareholders' agreement is where that arrangement is written down before it is tested. How each partner's contributed equipment is valued, what happens on death, disability or departure, how a departing partner's shares are priced and paid over time, and who can sign for a new loan are all cheap questions to answer at the start. We work with your lawyer so the agreement and the share structure match; the shareholders' agreement question has a short answer for any company with more than one owner.

The setup itself is a sequence: articles of incorporation (an Ontario corporation is enough for a business that works in Ontario), a minute book, a business number with the RC, RT and RP program accounts for corporate tax, HST and payroll, WSIB registration, enrolment in the T5018 program, and a fiscal year-end chosen on purpose. For this trade we usually recommend a year-end shortly after the season closes, when work in progress and holdbacks are at their lowest and the year-end is cheapest to prepare. For owners who buy equipment at US auctions or plan any US work, the cross-border page for paving contractors covers what the corporation needs to be ready for, and our incorporation and compliance page sets out how we handle the annual filings afterward.

Source: Ontario — Ontario Business Registry.