READER QUESTION: What Are The Benefits Of Incorporating My Business?
Legal Shark’s Response |
This is a common question posed to the Shark. Many small business owners operate their businesses as sole proprietorships in which they and their businesses are one in the same. This may work for a few folks but the better approach is to incorporate your business. The top four benefits of incorporating your business are limited legal liability, advantageous tax treatment, building a corporate brand, and perpetual existence.
By limited legal liability, the Shark is referring to personal asset protection. Corporations allow owners (shareholders) to separate and protect their personal assets from their corporate or business assets. This is critical protection for any business owner, large or small. By conducting business through their company, the shareholders are risking the Company’s assets only not their personal assets such as homes, cars, boats, cash in bank accounts, personal RRSPs, or personal investment portfolios. Corporations protect entrepreneurs’ pesonal assets in case debts or legal judgments are claimed against the business. This distinction is critical as once a company is incorporated, it obtains a separate legal personality distinct from the business owner.
Incorporating your business may lead to lower taxes depending upon your particular situation and the province in which you operate. Once the business generates more income than you need for your living expenses, incorporating can typically save you money. In this context, a corporation will allow an owner to save money by enjoying favourable tax treatment. In general, corporate tax rates are lower than personal tax rates. However, from a tax perspective, your company has to generate a substantial profit before this becomes an advantage. Corporations are allowed to deduct normal business expenses from their revenue which results in less payable taxes. Normal business expenses include items such as rent, employee payroll expenses, overhead expenses, equipment leases, marketing expenes, and so on.
In today’s competitive world, building a corporate brand is critical. Adding “Corp.” or “Inc.” after your business name can add instant legitimacy and authority. Consumers, vendors and partners frequently prefer to do business with an incorporated company. Once incorporated, your business’ name will be protected in that other businesses may not use a trade name that is identical or substantially similar to your business. This benefits the business legally and helps with brand-building and marketing.
Corporations can continue to exist even if ownership or management changes. Corporations may exist forever as long as certain compliance matters are satisfied. This is great for brand building and continuity. Sole proprietorships and partnerships typically end if an owner dies or leaves the business.
If you would like to incorporate your business, or require related advice or have any other legal questions, you better call C2K Law Corporation. Feel free to “Summon the Shark” by sending an email to firstname.lastname@example.org.