Do you need to incorporate a small business?
Originally Published: Mar 22, 2018
We are asked this question on a daily basis. There are 2 formats to start a new business within most jurisdictions within Canada. They include either registering a business registration/Master Business Licence or Incorporating.
Let’s take a quick view of what an incorporated company offers you as a business owner within any jurisdiction in Canada.
If you are using a business name to operate your business, completing an incorporated company provides name protection for that business name within the jurisdiction you incorporate. To keep it simple, if you decide to incorporate ABC Holdings Inc. in the Province of Ontario, once you have incorporated the business name, no one else within Ontario can use that exact corporate name as the Province will not allow it.
If someone incorporates a similar named corporation such as ABC Holdings LTD or ABC Holdings as a registered business and they operate within the same industry, you may be able to request that the business name is changed. Your business name is your BRAND and the name becomes more and more important to you the longer you have your business. This may be one compelling component in opting to incorporate.
When you register a Sole Proprietorship or General Partnership, there is no name protection and any other business owner can use the same or similar business name to yours. This can be harmful to your brand and business identity to the community and it can happen at any time after you have registered your business.
If the type of business you are operating provides either personal or property risk to others, incorporating a business provides the greatest distance between you and your personal assets to the business and its risks. To give you examples, if your business is working on peoples websites from home, your risk or liability may be considered minor. If your business is completing landscaping for homeowners, your risk or liability may be considered more significant. Whether you choose to incorporate or not, it is always advisable to get business insurance coverage as well.
By completing an incorporated company, you remove your personal self from the risks involved in the business. Let’s assume the unfortunate circumstance occurs where your business is being litigated due to personal or property damage. The limited liability provided by having an incorporated business protects you as an owner from judgement against your personal assets to the maximum availability with you choosing an incorporated business. With a registered business that is not incorporated, your personal assets can be used to satisfy the judgement of the financial obligation. These may include your personal assets such as your home, personal bank accounts, and vehicle simply because the business is registered and not incorporated.
I don’t know anyone who likes this subject or paying their taxes however it’s a burden we all share. Incorporating a company may assist you to reduce your taxable income. How does this happen? Incorporated companies are taxed at a lower tax rate than individuals however to access this tax benefit, you must be able to keep money within the corporation instead of drawing the money over to yourself personally. Just to ensure you understand this, when you have an incorporated company, it’s a separate entity or being from you as a person. When you earn money, say $100.00, the money is put in the corporate bank account and the corporate tax is applicable. If you take that $100.00 and transfer the money over to you personally, you will have both a corporate and personal tax bill. If you are able to keep even $5.00 in the corporate account without transferring it over to you personally, you will save tax dollars. Corporate tax in Canada depends on which Province you live in but for example, lets discuss Ontario. If you own a private corporation the net tax rate is 9%. Personal tax rates for individuals is 15% for the first $47630 income plus 20.5% on the next tier to $95,259 and 26% over $95259 up to $147,667. There is significant tax savings available to you as a business owner if you are able to maintain net revenues within the corporation. There is also the ability to do a tax deferral and income splitting. It is recommended that you speak to a chartered accountant to review your specific situation.
It is important to weigh the advantages and disadvantages to incorporation and review how important the key elements of incorporation are to you and your business. There are many benefits to incorporation and whether you are a new business owner or someone who currently has a registered or small business, reviewing the advantages and disadvantages of incorporation are very important. If your assets are at risk where you want to limit your personal exposure to the business or name protection and brand of your business are vital to you or your taxable income from the business will or already has reached a level where you will not require the full revenues from the business to take care of your personal needs, it may be a good time to incorporate your business.
Fees to Incorporate
The fees in general to incorporate are around $600 including agent and government fees and the transaction is available on a same day basis for most jurisdictions.
I hope you enjoyed this blog and have found it to be informative.
If you would like us to assist you with completing the electronic incorporation, here are the links to incorporate in many provinces through our website.
British Columbia Incorporation
We at Ontario Business Central Inc. have been assisting people to establish their businesses since 1992. If you would like our assistance or have further questions to ask, please feel free to reach out to us directly.
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Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.