Incorporating your business sets a strong foundation for long-term growth and protection. This process involves transforming your business into a separate legal entity, commonly structured as a corporation. Doing so separates ownership and ensures the business becomes independent from its shareholders. There are two main types of incorporations: not-for-profit and for-profit companies.
From a financial perspective, incorporating your business offers several key advantages:
Lower Corporate Tax Rates: In Canada, corporations are subject to lower tax rates compared to personal income tax rates for sole proprietors or partnerships. Corporations pay taxes on their earnings at established rates. Subsequently, when net income is distributed to owners, it is taxed again at their personal rates. This structure can result in significant tax savings, particularly for businesses with higher profits.
Enhanced Access to Financing and Grants: As a corporation, you gain easier access to funding opportunities, such as bank loans and investments, empowering you to fuel business expansion and pursue new opportunities.
Personal Asset Protection: Incorporation provides robust protection for personal assets. Without it, your assets may be vulnerable to lawsuits against your company. Incorporation creates a solid barrier between your personal assets and legal claims against your business. However, it's important to note that incorporation may not shield you from certain liabilities, such as failure to remit certain taxes, which could hold you liable as a company director.
Enhanced Credibility and Trust: Establishing your business as a corporation adds professionalism and credibility in the eyes of clients, investors, and partners. A corporate structure instills confidence in stakeholders by signaling professionalism, ensuring transparency and accountability through strict regulatory requirements, and offering limited liability.
Overall, incorporating your business offers numerous benefits that can contribute to its long-term success and sustainability.
