As a small business owner, you may be considering incorporating your business. Incorporated businesses are different than sole proprietorships and partnerships in many ways, and there are advantages and disadvantages to incorporating your small business in Canada. The chart below outlines a few features and drawbacks to incorporating your business.
Advantages
Limited Liability
Your business is now its own entity, and you won't have the same personal tie as you do with a sole proprietorship. Shareholders are only responsible for the amount they have invested.
Continuity
The business can continue to exists even if the shareholders leave the business.
Raise Funds
Both sole proprietors and corporations can access loans and grants. However, corporations have the ability to sell shares to gain additional financing.
Income Control
As a corporation you can control the amount of income you receive personally. As a sole proprietorship, any income generated will be recorded as personal income.
Client Perception
Corporations may receive more business because they have LTD or INC at the end of their name. To consumers, your business may look more stable compared to sole proprietorships. Some companies may only deal with incorporated businesses.
Disadvantages
Cost
It is more expensive to incorporate your business than to register your business as a sole proprietorship. The costs are higher due to a more complex legal structure.
Additional Tax Return
As an incorporation you will have to file two tax returns including business income and personal income. This can lead to an increase in accounting expenses.
Paperwork
As a director of an incorporation, you will have to maintain a minute book that includes corporate bylaws and meeting minutes. You will also have to maintain the register of director, the transfer register and share register.
Tax Implications
Corporations are not eligible for personal tax credits that could reduce your income. They also have less flexibility in handling business losses compared to sole proprietorships.
Difficult to Close
To close a corporation you must pass a resolution to dissolve the corporation, send a copy of Articles of Dissolution to the CRA along with a final tax return, as well as close payroll accounts.
Please note there are more advantages and disadvantages when considering incorporating your business. Always consult your lawyer and accountant to determine what is right for you and your business.
For more information on what KJCO can offer your business, contact us at 705.493.4525 or info@kjco.ca.
