Incorporating a Business
Incorporating a business is an important step for a business owner. You may have been operating as a sole proprietorship and now feel it is the right time to incorporate a business. There is a lot of information available on how to go about doing that and it can be daunting. Fear not, we will go through all the steps that will bring you closer to incorporating your business.
How do you know if your ready to incorporate?
One of the main advantages of incorporating a business are taxes. It goes without saying that individuals and businesses are taxed differently.
Hopefully, your business is doing well and earning you healthy profits. If you continue as a sole proprietorship then all the profits your business earns are taxed as personal income. Personal income is taxed based on federal income tax brackets meaning you get taxed more on additional income as you move up the tax brackets. Corporations are taxed lower than individuals and small business have additional tax reductions which reduce the tax bill even further. Funds in the corporation can be paid out to you as salary and/or dividends.
Another, benefit of incorporating a business is the separation of personal and company assets. By incorporating you are protecting your personal assets. In case your business goes under the creditors cannot go after your personal assets to recover their funds. If you do not incorporate and your business goes under then you are personally liable for your business debts.
Why incorporate a business?
We have already discussed two important benefits of incorporating a business, tax advantages and protection of personal assets.
Additional benefits of incorporating are succession planning, ability to transfer the business to your children, and ability to obtain funding to expand your business through sale of shares.
Continuity – A corporation continues even after the founder has passed away.
Where to incorporate a business?
You can either incorporate a business provincially or federally. If you are expecting to operate within a province then incorporating provincially may be the better option, however, if your business operates across Canada then incorporating federally may better suit your needs.
If you were to incorporate provincially you can incorporate federally at a later date if the needs of the business require federal incorporation.
How do I incorporate a business?
Here are the steps to incorporate a business in Canada
Step 1: Name your business
To incorporate a business you will have to name the business. It can be either a word name or a numbered name.
Word name can contain letters and symbols
Numbered name can contain numbers
If you are planning of use a word(s) to name your business then you will have to make sure it does not infringe to registered trademark or domain name. The word name must be unique.
Using a numbered name is the easiest method. A number will be assigned to your corporation. This does not mean that you have to use that number to conduct your business, you can use a word name to carry on your business.
Step 2: Articles of Incorporation
Articles of incorporation contain the structure of your business. This contains:
shares (one class or two classes)
number of directors (max 10)
corporation name or numbered
other provisions if any
Easiest method is basic incorporation which provides predetermined articles of incorporation
Articles can be in English, French, or both.
Step 3: Disclose your registered office address
Your business will need a registered office address where official documents will be sent, such as the certificate of incorporation.
How to apply?
There are three ways to apply:
It is important to remember there are incorporation fees. Incorporating a business provincially is cheaper than federal incorporation.
Disclaimer: Information provided may not be complete or accurate. It should not be considered financial advice.