Benefit of Incorporating Your Business
When we start a new business idea, we will have all the elements that will drive this idea to succeed.
We will raise capital; the level of education needed and obtain the practical experience.
After a couple of successful years from operating as a sole proprietorship, you find yourself needing a business structure to move your business to the next level.
The question is; do I need to incorporate my business at this point? And what is the benefit from incorporating my business?
All the benefits from incorporating your business are listed below and they are available to all corporations registered here in Canada.
The advantages are:
- A corporation is a legal separate entity from its owners; that we will call them a shareholders, each shareholder will hold number and kind of shares separate from his or her legal entity as an individual.
- The corporation can easily raise capital by selling part of these shares to raise equity capital or debit capital in a form of loan from a financial institution.
- The corporation has unlimited life span will continue to survive regardless of the shareholders existence, can be sold as a business and claim capital gain deductions (if met specific conditions).
- Income splitting among family members and estate planning, if you decided to add your spouse and adult kids as shareholders, shareholders doesn’t have to involve with the daily operation of the corporation.
- Dividends versus payroll as a kind of compensation for shareholders that will reduce their income taxes.
- Specific expenses that can be claimed against income are only available for a corporation such as Research and Development (SR&ED), it is a federal incentive program for all business here in Canada.
- Small Business Tax Deduction available for all Canadian Private Controlled Corporations at a rate 11% up to $500,000 active income in a year.
Now let’s talk about the only disadvantage of incorporation:
Paper work and record keeping is essential to keep your business successful with all the benefits, this being said, you need an accountant to provide you with a professional advice, and lead you to success.