The question of whether or not to incorporate your business is something that has probably popped up in your mind multiple times if you run a business. Just like any other procedure related to finances and tax, the answer to ‘should I incorporate my business’ really depends on your individual situation.
However, everyone will agree that incorporating your business has some serious advantages.
First of all, what is Incorporation?
Incorporation is basically the procedure in which a business is legally altered to a separate entity and not simply a business. There are many benefits to incorporating your business and the pros and cons are examined below.
How do You Incorporate a Small Business in Canada?
There are two main avenues you can pursue when it comes to Canadian incorporation. You can either choose to incorporate federally or provincially. Provincial incorporation is the best option for individuals who will only operate their business in one province. Federal incorporation, on the other hand, is for those individuals who wish to run their business across all the provinces in Canada.
After you choose which one you will choose, you need to then submit a name for your company. it is important that the name is unique and has not been used before. You also need to submit the names of the first directors and any bylaws which you would like to carry out.
PROS of Incorporating Your Small Business:
There are many advantages of incorporating your small business, and some of the biggest advantages include:
When you turn your business into a corporation you are naming it as a separate entity. Since it is a separate entity all of the liabilities which it incurs has to be paid off by the corporation itself and your personal assets need not be compromised.
For example, if you start a yard cleaning business and you turn it into a corporation, any harm that your employees or customers face due to your companies chemicals and machinery will not be held against you personally but will be up to the corporation to pay for. You can keep your personal finances and assets secure and separate from your business once it becomes incorporated.
When you incorporate your business you also gain access to more small business tax deductions. When you just have a business then any money the business makes or money it loses directly effects your personal finances and you pay taxes according to that. However, if you incorporate your business, your income will be separate and the taxes which your business pays will be separate as well.
If your incorporated business makes a lot of money you can expect a greater reduction in taxes at the end of the year simply because you chose to incorporate.
Once your business is incorporated, other individuals such as financial loan lenders will understand that you are serious about your business and will give you money to invest more readily. In fact, many banks have a loan policy that you must have incorporated your business if you want to borrow money to begin with.
CONS of Incorporating Your Small Business:
However, there are a few cons of incorporation.
Initial Cost of Incorporation:
There is an initial start-up cost for incorporating your business. If you choose to go with federal incorporation then the cost is $275 if filed online. This includes the price for the required name NUANS report as well.
If you only want to incorporate provincially then the price generally differs province by province. Here is a quick break down of the prices per province you should expect to pay.
Cost of Incorporating in Ontario:$360
Cost of Incorporating in Alberta: $450+$30(NUANS)
Cost of Incorporating in British Columbia: $350+30(NUANS)
Cost of Incorporating in Quebec: $326+$22(NUANS)
Cost of Incorporating in Nova Scotia: $336+118(HST)+61(NUANS)
Apart from the additional initial cost, you will also have to carry the cost of filing your corporate taxes and also for filing annual reports for your corporation.
When you have a business there isn’t much paperwork involved. However, with a corporation, you have to hold shareholder meetings, file corporation reports, and follow strict paperwork guidelines.
There are many advantages to incorporating, and anyone who runs a successful business can definitely benefit by incorporating. It only takes a small amount of money and paperwork to get the job done. If you want to incorporate your business, contact a professional accountant to help you file all the paperwork seamlessly.