Many small business owners face the decision about whether to incorporate or not. There are several advantages to incorporation, however, there are also disadvantages to consider.
The main advantage to incorporating is the limited liability. Operating through an incorporated company limits the risk you expose yourself to. If you operate the business as a sole proprietor, your personal assets could be at risk.
Another factor to consider is that a corporation continues, unlike a sole proprietorship. A corporation can continue indefinitely regardless of what happens to the shareholders (or directors). With other business structures, the business ceases to exist when the owner dies.
There can be some tax advantages to incorporating a company. Corporations are taxed separately from the shareholders and corporate tax rates are lower than personal tax rates. If you leave the funds in the company, there is also the potential for tax deferral.
There are some disadvantages to incorporating, the most obvious being the ongoing costs to prepare the tax return. In addition to personal taxes, you will need to have corporate tax returns prepared annually. There is also the cost to incorporate the company. There is the initial cost to set the company up, and then the corporation is required to file annual returns at a cost.
It’s important to note that while incorporating it limits the liability you can subject yourself to, this does not extend to debts with the government for payroll deducts, or GST, or where the individual shareholder has signed a personal guarantee.
After reviewing the advantages and disadvantages, it may not be simple to determine if you should incorporate your business. If you have questions please contact me!
