Thinking about launching a small business? Or already own a business and are looking to expand or take the “next step”? Maybe you’re looking for a way to protect your personal assets in case something in your business goes wrong. Regardless of the scenario, you may want to consider incorporating your business.
What does INCORPORATING mean?
Incorporation creates a separate legal entity (the “corporation”). This entity has rights and liabilities that continue until they are dissolved. That means that your company can accumulate wealth – or go into debt – just like a person.
Creating a separate legal entity means limited liability for shareholders. Generally, that means that shareholders or the owner are not held responsible for a corporation’s debts. However, the directors of the company may still be partially liable.
If you have an angry client who wants to sue you, that client could only go after the assets of the corporation and not your personal assets such as your car or home.
Limited liability is more beneficial to those working in industries where they are more likely to be sued. Therefore, if you’re launching such a business, it might be smart to incorporate from the start.
Corporate tax rates are generally lower than individual rates, so incorporating could give you a tax break since your company is a separate entity and not tied to your personal income tax. There may be other tax benefits – depending on your situation. However, the rules around this are tricky, so it would be wise to consult an accountant or tax lawyer.
EASIER TO OBTAIN CAPITAL
It is often easier for corporations to obtain loans and they can often get them at lower rates. This may be because banks view corporations as more stable. They’re not as risky as people.
Keep in mind upfront costs and the extra administrative paper work that comes with incorporation.
The Corporations Canada website is a fantastic resource if you’re thinking about incorporating. They offer information specific to different industries, as well as FAQs and “how-to” guides for filing online.
After consulting with a lawyer and accountant perhaps you might consider incorporating online. If you decide to go this route consider using Staples and Corporation Centre.ca to register your Canadian Business – that’s what WIBN did when we started our business and I found the process to be user-friendly and it also fit within our startup budget.
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