Should you incorporate?

As you start your new business, you will undoubtedly come across the question of whether you should incorporate or remain a sole proprietor. There are advantages and disadvantages to incorporation and you should always consult with your accountant before making the decision that could have a long lasting impact on your business.

Advantages

  • Limited liability which means that shareholders are only liable up to the amount that they have invested in the corporation
  • Favorable income tax rate that is lower than the lowest personal tax rate
  • Capital gains deductions of $800,000 on the sale of a qualifying small business corporation
  • Private health services plans can be used to provide tax free benefits to employees
  • Corporations carry on long after a shareholder’s death or exit
  • Easier to raise capital to fund projects or expansion
  • Potential tax deferral if you are a high income earner
  • Potential income tax splitting
  • Having Ltd, Inc. or Corp. after the company’s name may lend more credibility and result in more business
  • Business name protection

Disadvantages

  • High set up costs compared to other business structures
  • Can be complicated setting up shares and shareholders
  • Business losses cannot be written off against other income but instead carried back 3 years or forward indefinitely
  • Increased administrative work to report annual return and corporate tax return which is filed in addition to a personal tax return for the shareholders
  • Limited liability may be less limited than originally thought. Shareholders may be required to provide a personal guarantee on bank loans and they are liable for all HST and payroll source deductions of the corporation

Questions?

Arrange a free consultation with me, Carmela CPA

Please email me at carmela@pirillo.ca or call me (647) 828-5531 to make an appointment.