Among the factors to consider are the benefits of incorporating and the implications that incorporation can have for your business.
If you decide to incorporate, you will then have to choose between federal incorporation and provincial or territorial incorporation. Even if you are not ready to incorporate at this time, the factors affecting this decision can change over time.
Benefits of incorporatingNo matter where you choose to incorporate, incorporation offers many benefits to your company, including:
Limited liabilityIncorporation limits the liability of a corporation's shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If your corporation goes bankrupt, your shareholders will not lose more than their investment (except shareholders who have provided personal guarantees for the corporation's debts). Creditors also cannot sue your shareholders for the corporation’s liabilities (debts), even though the shareholders are the owners of your corporation.
However, if a shareholder has another relationship with the corporation (for ex., as a director), there are circumstances when this person can be liable for the debts of the corporation. In other words, the person would not be liable for the corporation’s debts as a shareholder, but as a director. Under the CBCA, directors have a number of duties and liabilities (see Duties and liabilities of directors and officers). For example, it says that directors can be held liable for certain acts or for failure to act.
Lower corporate tax ratesCorporations are taxed separately from their owners. Because the corporate tax rate is generally lower than the individual tax rate, incorporation can offer you some fiscal advantages. Consider consulting a lawyer or an accountant to help you assess whether incorporating might save you money. In fact, your accountant will likely recommend incorporation once your revenues reach a certain point.
Better access to capital and grantsRaising money is often easier for corporations than it is for other forms of business. For example, your corporation would have the option of issuing bonds or share certificates to investors. Other types of businesses must rely solely on their own money and loans for capital. This can limit the ability of your business to expand.
Corporations are also often able to borrow money at lower rates than the rates offered to other types of businesses. Financial institutions and others tend to see loans to corporations as less risky than those given to businesses that are not incorporated.
Continuous existenceYour corporation would continue to exist even if every shareholder and director were to die. In these circumstances, ownership of the corporation would simply transfer to the shareholders' heirs. This is not the case for partnerships or sole proprietorships, which cease to exist on the death of their owners.
This greater stability would allow your corporation to plan over a longer term. It also helps in obtaining more favourable financing.
If you decide to incorporate, you will then have to choose between federal incorporation and provincial or territorial incorporation. Even if you are not ready to incorporate at this time, the factors affecting this decision can change over time.
Benefits of incorporatingNo matter where you choose to incorporate, incorporation offers many benefits to your company, including:
- creation of a separate legal entity
- limited liability
- lower corporate tax rates
- better access to capital and grants
- continuous existence.
Limited liabilityIncorporation limits the liability of a corporation's shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If your corporation goes bankrupt, your shareholders will not lose more than their investment (except shareholders who have provided personal guarantees for the corporation's debts). Creditors also cannot sue your shareholders for the corporation’s liabilities (debts), even though the shareholders are the owners of your corporation.
However, if a shareholder has another relationship with the corporation (for ex., as a director), there are circumstances when this person can be liable for the debts of the corporation. In other words, the person would not be liable for the corporation’s debts as a shareholder, but as a director. Under the CBCA, directors have a number of duties and liabilities (see Duties and liabilities of directors and officers). For example, it says that directors can be held liable for certain acts or for failure to act.
Lower corporate tax ratesCorporations are taxed separately from their owners. Because the corporate tax rate is generally lower than the individual tax rate, incorporation can offer you some fiscal advantages. Consider consulting a lawyer or an accountant to help you assess whether incorporating might save you money. In fact, your accountant will likely recommend incorporation once your revenues reach a certain point.
Better access to capital and grantsRaising money is often easier for corporations than it is for other forms of business. For example, your corporation would have the option of issuing bonds or share certificates to investors. Other types of businesses must rely solely on their own money and loans for capital. This can limit the ability of your business to expand.
Corporations are also often able to borrow money at lower rates than the rates offered to other types of businesses. Financial institutions and others tend to see loans to corporations as less risky than those given to businesses that are not incorporated.
Continuous existenceYour corporation would continue to exist even if every shareholder and director were to die. In these circumstances, ownership of the corporation would simply transfer to the shareholders' heirs. This is not the case for partnerships or sole proprietorships, which cease to exist on the death of their owners.
This greater stability would allow your corporation to plan over a longer term. It also helps in obtaining more favourable financing.