Advantages vs Disadvantages of Incorporation
A corporation or "company" is a legal structure used to operate a business.
People who start their company operating alone or with a partnership can decide to incorporate once their business starts to profit. Incorporation offers many tax advantages and also reduces some risks involved with running the business because it is the company and not the owner that is usually responsible for its debts.
Often, it’s not worthwhile to incorporate when you’re just starting a business, but once that business is profitable, incorporation can offer several significant benefits.
Here is our opinion on the advantages and disadvantages of incorporation:
Advantages of incorporating:
1. Distinct responsibility of the company and its shareholders.
2. Except for unusual cases (ex. Illegal acts), a shareholder is not personally responsible for the actions of the corporation.
3. Projected Image: the image of a corporation is much more professional to investors and potential clients than an individual acting on their own.
4. A corporation benefits from a lower tax rate on income generated during the year. Therefore, a corporation can accumulate additional income without necessarily paying tax on it (tax deferral).
5. This additional income may also be distributed as dividends or salary.
Disadvantages of incorporating:
1. Incorporation application, paperwork and fees.
2. Obligation to produce yearly financial statements and separate annual tax report.
3. Incorporation is not always the most profitable option for the business.
Services we provide:
Complete incorporation application including:
-Choosing a legal name
-Legal advice on choice of jurisdiction (Provincial vs. Federal)
-Paperwork related to the incorporation procedure (reserve your company name, company statutes, shareholder’s agreement, payment of government fees, etc.)
-Minute book : Shareholder’s registry, officers, by-laws, etc.
- GST/ PST Tax registration.