Why Incorporate?

Many small business owners face the pressing issue of deciding whether they should incorporate or not. The pros and cons of incorporating are as follows (references from Incorporation Canada)

Pros:

Limited Liability

Incorporation limits the liability of a corporation's shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If your corporation goes bankrupt, your shareholders will not lose more than their investment (except shareholders who have provided personal guarantees for the corporation's debts). Creditors also cannot sue your shareholders for the corporation’s liabilities (debts), even though the shareholders are the owners of your corporation.

Lower corporate tax rates

Corporations are taxed separately from their owners. Because the corporate tax rate is generally lower than the individual tax rate, incorporation can offer you some fiscal advantages. Consider consulting a lawyer or an accountant to help you assess whether incorporating might save you money. In fact, your accountant will likely recommend incorporation once your revenues reach a certain point.

Income Splitting

Income splitting used to be a major reason for incorporating your small business. Since 2018, this has changed significantly due to some new tax regulations, and it is now much less of an advantage.

Lifetime Capital Gains Exemption (LCGE)

The LCGE allows some incorporated businesses to sell at a gain of up to $866,912 without paying any tax.

Cons:

Higher start-up costs

If you decide to incorporate your business, you will have higher start-up costs than if you carry on the business as a sole proprietorship or partnership. Some of these costs are directly related to the process of setting up the corporation. Other costs can include ongoing professional fees paid for legal and accounting services. Consider consulting a lawyer, especially if you are thinking of setting up a company with a complex share structure.

Administrative requirements

Your federally incorporated business must file certain documents with Corporations Canada, including:

• Articles of incorporation
• Annual returns
• Notices of any changes in the board of directors
• Notices of any changes in the address of the registered office
• Articles of amendment if changes to the structure of the corporation are made

Ask Noble Accounting about Incorporation

There are many variables to consider when making the decision if incorporating is right for you. Speak to one of our trusted advisors to discuss whether incorporating is right for your business