There is no quick answer to whether you need to incorporate a business. In this article, let’s talk about why people in general lean towards incorporation over simply registering a business.
A factor to consider is who will be your customers. We hear from individuals who are incorporating with us because they are coming into a contractual agreement with an existing business that is requiring them to set up their business as an incorporated company. If you are intending to establish a contract position with another business, you may want to speak to the business prior to setting up the business to ensure there are no restrictions on which form of business you establish.
Buying a franchise
If your new business is purchasing and becoming a franchisee to an existing brand such as McDonald’s, Taco Bell or Pizza Pizza, the corporation which holds the licencing of the brand may require you to incorporate to operate as a franchisee under their brand. Typically, the franchise owner will have a legal department or counsel you may contact for specific questions related to establishing the business.
In Canada, there are only 2 options to obtain name protection for your business name. One is to trademark which provides the highest level of name protection available however it is the most expensive option for name protection and doesn’t offer the ability to operate the business. It is exclusively and solely for the purposes of protecting the name of a product or service. You will also need to either incorporate or register a business to operate the business even with completing the Trademark.
The secondary option is to incorporate the business name. Incorporation provides name protection for the exact business name you have incorporated within the jurisdiction (Province or Territory) you incorporate within. If after you incorporate a newer business appears to be using a similar business name that may be confusing to your established business name, you may have the ability to require the new business to change or cancel their business name. It is recommended if you do find a similar business name to yours that you speak to a lawyer and gain an opinion as to infringement for the possibility to require the new business to complete a name change of the business viewed as conflicting.
When you start a business, you have two options to either register a business or to incorporate. With registering a business, you are personally liable for the business which means that if there is an financial cost to a third party by dealing with your business, your personal assets will be included in any legal action commenced. Incorporation offers a layer of distance between you as a person and your personal assets from the corporate business and the financial liability that goes along with operating a business. If you consider how much risk is involved with offering your service or product and the potential personal or property damage that may occur, this should assist you in determining which option best suits your liability risk with your business operation. As a side note, it is highly recommended under either circumstance of business operation, that you obtain business insurance in the event of personal or property liability to a third party.
As a favorite topic to all of us, taxation is something to consider. Whether you operate a small business or you incorporate, there are taxable implications. With a registered business, you are taxed personally for the profits of the business minus the business expenses. With an incorporated business, the business has a separate tax account with Revenue Canada from you as an individual. For those who believe that they will operate the business and require any and all funds produced by the business for their own personal use a registered business may be suitable, for those who believe they may be in the position where only part of the profits from the business may be required by the individual or individuals who own the business a corporation may be suitable. The corporate tax rate in Canada is relatively low and offers the ability for entrepreneurs who maintain money within the corporation instead of drawing it personally to benefit from a lower tax rate.
In the business community, there are different perceptions of a registered business versus an incorporated business. A registered business is typically viewed as a small operation where there are not a lot of employees or assets. A corporation in general is viewed as a more serious business where the size of the business is not assumed. Many within the business community prefer to deal with an incorporated business and view the business as having more substance and longevity. There are no hard and fast rules and no absolutes for the perception of a business but if your intention is to gain corporate clients this may be an item for consideration.
We hope you find this blog informative. At Ontario Business Central we work hard to offer articles to support you as an entrepreneur and business owner. Our staff are available if you would like to reach out and ask any question related to this article and establishing your business.
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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.