Why Should I Incorporate My Business in Canada? – Part II: The Advantages

So you are thinking about incorporating. Here are some more advantages as well as potential pitfalls of incorporating:

Limited Liability

As we said in the previous post, a corporation is a separate legal entity from its owners, and the main advantage of that is that the owners, or shareholders are for the most part not liable for the corporations debts and obligations. They can only lose the amount they invested in the corporation. The creditors can only have claims against the corporation itself and not the shareholders.

Perpetual Existence

Being a separate legal entity, a corporation does not cease to exist if the shareholders, directors, officers or members die or retire. The ownership of the corporation and it shares can therefore be easily transferred. The corporation itself may also own property, enter into contracts and sue or be sued, independent of any individual involved.

More Potential Sources of Capital, More Attractive to Investors

Corporations can issue different classes of shares as well as different debt instruments, such as bonds, in order to raise capital. Sole proprietorships and partnerships cannot do so as easily. This makes it easier for corporations to attract investors as opposed to the other business forms.

Tax Benefits

Among other tax benefits, incorporating would cause your business to pay income tax at a lower rate than as a sole proprietorship or partnership. It would also be possible to carry forth losses of previous years that offset the profits of subsequent years.

Credibility and Prestige

Incorporating can very well lend greater credibility and prestige to your business dealings that you would not have otherwise. You might be seen as a more established company as opposed to before you incorporated.

Now that we have discussed some of the advantages, here are some formalities you should be aware that you would be subjected to upon incorporating:

Higher Start-up Costs

The cost to incorporate, including government fees, may be higher than those to initiate a sole proprietorship or partnership.

Maintaining Records

In order to provide shareholders with information, a corporation must keep meticulous records, as well as hold meetings and elect directors.

Double Taxation

This may seem like a disadvantage, however it can be minimized. The corporation pays taxes on its income and the shareholders pay taxes on their dividends (profits). But the corporation's business expenses, such as salaries, can be offset by its income.


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