Many people are drawn to the concept of entrepreneurship, but learning how to launch a company and incorporate it can be stressful. Although the idea of
entrepreneurship appeals to many individuals, starting a business and incorporating it can be difficult. It’s a common assumption among business entrepreneurs that incorporating a company requires a capital investment in the business. In reality, the scale of the company has nothing to do with determining whether or not the firm should be incorporated. For a business owner in Canada, there are numerous benefits and drawbacks associated with incorporation, and none of them are based on the size of the company, the revenue or the income it generates.
Advantages to Incorporation
Potential Tax Deferral
If you incorporate your business, you can be at the benefit of having your business income and your personal income getting taxed separately. This way, owners are at liberty to withdraw their personal income at the time when the personal tax brackets go lower.
Liability Insurance
According to the
Canadian Revenue Agency, having your company incorporated within Canada provides you with liability insurance. The owner and the business are then seen as two distinct entities. In case of any unanticipated situations, the corporate assets alone are at risk due to any legal measures conducted.
In this manner, there is no chance that an owner’s personal assets may be at risk.
Credibility
Often, incorporating your businesses can assist you draw in new clients. Incorporated companies are frequently chosen by prospective clients with larger projects since they are viewed as more reputable and reliable in the business world. Therefore, incorporation gives your business credibility by attracting potential customers.
Disadvantages To Incorporation
Higher Upfront Costs
There are inherent downsides to every business concept. Even after paying the initial setup charge, incorporating your firm can be highly expensive. In addition to paying fees to have an accountant file the annual corporate tax return, there are legal filing fees charged per annum as well.
Increased Administrative burden
Apart from eating up the company’s valuable time, the legal and tax filing taking place to present reports to the authorities not only increases the financial dependence of the company but also complicates administration work. This proves itself as an additional disadvantage that’s only reserved to companies that are incorporated.
Separate Tax Returns
Where there are certain pros attached to the corporation and the owner being treated as separate identities, things get complicated at the time of the year when tax has to be paid. Especially in the cases of companies that do not generate a hefty income, tax returns of the owner and the firm separately come off as more perplexing for the company. In some situations, if the dates of the tax returns coincide, the company comes down at a risk of getting closed down by authorities, for corporate taxes, being complex and elaborate, require a tax accountant. This comes off as an additional cost to the company.
Conclusion
There are many opportunities and advantages to incorporating your organization in Canada, but it is mostly based on your phase of growth or level of profitability. Additionally, speaking with an experienced
corporate tax accountant and assessing and reassessing your company’s objectives can help you determine if incorporation is the best course of action for you and your company.