Why should I incorporate my business? Many Canadian small business owners want to know how to incorporate and what are the benefits. If you are not aware of the financial benefits of incorporating in Canada, then this blog post is for you.
Incorporation can help your business operations in a number of ways. For example, tax benefits of incorporating can be a reason why you should move forward with the incorporation process. There are financial privileges that are only available to incorporated businesses. As a small business owner, you can take advantage of lifetime capital gains exemption and small business deductions.
What is business incorporation?
When you incorporate your business, it becomes a legal entity which is separate from its shareholders and owners. You can incorporate your business at the federal or provincial level in Canada. While you are not legally bound to incorporate, it can provide benefits in terms of legal protection and tax reduction. You can decide whether you want to incorporate federally or provincially. Consider the scope of your company to make the right decision.
Finalizing a corporate name is a complex process following the stringent name requirements when a business is incorporated. There must be a distinctive portion that identifies the particular corporation, activities, and a legal element.
Related: How To Incorporate Your Business in Canada
Financial advantages of incorporating
When a small business is incorporated, it becomes possible for the owners to determine when and how to receive income from the business, which is a tax advantage. You can take your income at a time when you will pay less in tax. Also, you have the option to get income from an incorporated business in the form of dividends which will significantly lower your tax bill. It is also easier for a corporation to raise money or borrow.
Limited liability is another major benefit incorporated companies can enjoy. The situation is different in the case of sole proprietorship where business owners assume all the liabilities of the company. As a sole proprietor, a financial institution can seize your personal assets such as your house or car to pay the debt of your business. On the other hand, as a shareholder in a corporation, you can’t be held responsible for the debts of the company.
A corporation will continue to exist even if the shareholders leave the business or die. Moreover, it is easy to sell a corporation.
There are also disadvantages of incorporating: expensive registration process, increased paperwork, and no personal tax credits. Therefore, make a considerate decision based on a cost-benefit analysis.
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