A question that I am asked frequently is, what is the difference between registering a Master Business Licence and Incorporating. First of all, congratulations on embarking on this new phase of your life. Being an entrepreneur can be one of the most exciting adventures of life.
Below is a listing of the key differences between the Master Business Licence and Incorporation
Limited Personal Liability
This is whether you are personally at risk with your business if there is personal or property loss due to your businesses actions. With a Master Business Licence, the answer is yes. A Master Business Licence does not provide any separation between you as an individual and your business.
With an Incorporated company, the business itself is a separate entity from you and has its own liability risk separate from you as an individual.
A Master Business Licence whether a sole proprietorship, general partnership or tradename under an existing corporation does NOT have name protection. If another business chooses to operate a same or similar name to your business name, they can with no opportunity for you to seek infringement.
With an incorporated company, you do have name protection for the exact same business name. The system will not allow someone to incorporate an exact same business name within your Province.. If someone incorporates or registers a business name that is similar after you have incorporated, you may be able to seek infringement requesting that the new business change its business name or face litigation. If this occurs, it is always beneficial to obtain an opinion from a lawyer on infringement.
A Master Business Licence is taxed at a personal level. When you register a Master Business Licence, the business is automatically considered part of your personal tax account.
With an incorporated company, because the corporation is a separate entity from you as an individual, the corporation has its own tax account separate from yours. This requires you to complete both a personal and corporate tax return each year. With an incorporated business, if you are able to keep money within the corporation instead of transferring the funds to your personal account, there may be tax savings as corporations are typically taxed at a lower tax rate. There is also the availability for income splitting with members of your household who earn less money, investing, gain credit/loans, providing a pension to yourself as a director of a corporation and many other options.
Length of registration
When you set up a Master Business Licence, it is valid for a 5 year period. Once the 5 years is approaching, you must either renew the business for an additional 5 years or the registration will automatically be cancelled by the Province of Ontario.
An incorporated company is continual. Once you set up the corporation, you never have to pay the fees to incorporate again or renew the corporation.
The Master Business Licence is limited as to the changes you can make without requiring a new registration. You can change business address, persons address or business activity, you can add or remove partners as long as the registration remains a partnership. The items you cannot change are business name, changing registration from one person to another or from a sole proprietorship to a general partnership or vice versa.
With an incorporated company, you have the availability to make any change to the corporation you wish including business name, directors listed, addresses, structure, and activity of the corporation.
The fees to register a Master Business Licence are typically a few hundred dollars less than with incorporation however you are required to renew the registration every 5 years where with the incorporation there are no renewal fees or incorporation fees required after the original process of establishing the corporation.
Laura Harvey is an entrepreneur herself as the owner of Ontario Business Central Inc. Her passion has always been about supporting the entrepreneurial spirit and advancement within Canada.
Laura authors in-depth blogs for Ontario Business Central assisting entrepreneurs and business owners to start, manage and grow their businesses. She has almost 30 years of expertise as a corporate specialist and 25 years of being an entrepreneur. Laura has the unique position of supporting a community that she also belongs to. She walks the walk right along with you.
You can find Laura on Linkedin and Twitter using the links below.