What is Business Incorporation?
An incorporated business (i.e. corporation) is considered to be a legal entity that is separate from its owners and shareholders. Canadian businesses can be incorporated at the federal or the provincial level.
While incorporation isn’t legally required, it can bring a certain amount of legal protection for the business owner(s), potentially reduce your tax liability and offer other benefits that can help your business grow.
The Benefits of Incorporating in Canada
The primary benefit of becoming a corporation in Canada is the separation of your personal and business obligations. This means that you cannot be held personally liable for the debts or actions of the corporation. So, if your business goes south then your personal finances and assets are protected. You may not think that you need protection against liability now but what if you’re a sole proprietor and a client holds you in breach of contract? Can you afford to put your personal assets at risk to satisfy any claims against your business?
Other advantages you should consider are:
Continuous existence: A corporation has an unlimited life span; if you sell the business or the shareholders pass away, the business will continue to exist.
Ownership of the business entity is transferable: Because the entity has an unlimited life span, you can sell your business or plan its succession easily.
Raising money can be easier: Incorporated businesses can sell shares and equity to drive growth.
Tax advantages: Corporations can benefit from Canada’s small business deductions. You can also choose to defer certain tax payments and benefit from new tax laws or a lower tax bracket. Each case can be unique.
Increase your credibility and business value: Many businesses won’t enter into sales or contract agreements with un-incorporated businesses. In this case, incorporation can improve your credibility and growth potential.
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