As a small business owner, every hard-earned dollar counts. You’ve put in a lot of effort and time. The good news is, you can save big on taxes and protect your wealth. That too by using the financial power of incorporation.
But, as your business grows, so do your worries. What if there’s a lawsuit? Or a large debt? What about the high taxes? This guide helps you understand why incorporating your Canadian business is smarter than you think.
What It Means to Become a Corporation
When your business is operating without partners, it’s a sole proprietorship. This means you and your business are legally the same thing. All profits are yours, but so are all the debts and risks. A corporation, on the other hand, creates a new and separate legal entity for your business
Confused between incorporation vs corporation? Here’s a direct comparison:
Feature | Before Incorporation (e.g., Sole Proprietor) | After Incorporation (As a Corporation) |
Personal Asset Protection | Your personal things (house, car) can be used to pay business debts. | Your personal things are safe. The business is responsible for its own debts. |
How Taxes Work | All business profit is taxed as your personal income, often at a higher rate. | The business pays its own, lower corporate tax rate. You can leave money in the company to grow. |
Legal Identity | You and your business are legally the same thing. | The business becomes its own separate “legal person.” |
Getting Money to Grow | Harder to get big loans or sell parts of the business to investors. | Easier to get loans from banks and sell shares to raise money. |
Business Lifespan | The business ends if you stop working or pass away. | The business can keep going forever, even if the owners change. |
Business Image | Seen as a small, one-person operation. | Looks more professional and stable to customers, banks, and partners. |
5 Core Financial Benefits of Incorporation
So, why go through the process? The decision is usually about the great money reasons. Let’s look at the main financial benefits of incorporation that can make a huge difference.
Pay Less in Taxes
Any corporation pays taxes at the small business tax rate in Canada. This rate is lower than personal tax rates. You will be able to save more to help your business grow. With long-term tax planning, you can make the most of these savings.
Protect Your Assets
When you are operating alone, all your risks and debts are yours. If your business gets into legal trouble, your assets become vulnerable.
Incorporation creates a safety net and keeps your house, car, and savings protected. This financial power of incorporation for business is the number 1 reason people prefer being incorporated.
Get More Access to Funding
When your business is incorporated, it is automatically more trusted. Banks, investors, and customers perceive your business as a reliable one.
One of the biggest advantages of incorporation is that it becomes easier to get bigger loans. You can even attract partners for expansion.
Build a Stable Business That Lasts
If you run a sole proprietorship, the business is tied directly to you. If you decide to retire or pass away, the business legally ends with you.
A corporation, however, can live on its own. It can continue to operate for generations, no matter what happens to its original owners.
Easier to Sell and Bring on Partners
In a solo business, you have to sell every part of the business. Which makes the process complicated. A corporation is divided by shares. Which means it is much easier to transfer ownership.
Is Incorporating the Right Choice for You?
Incorporating is not for all businesses. If you are very new to business, consider seeking expert advice. You need to consider how much your revenues are and what your goal is for the future.
Also, keep in mind that the process comes with a lot of paperwork. You can use specialized bookkeeping management services to stay organized. If you want to avoid risks and stay on the right side of the law, an expert can help you decide.
How to Start the Incorporation Process
If you want all the benefits of incorporating in Canada, getting every step right is important. The wisest move is to contact a professional team.
The incorporation of a company breaks down into these steps:
Step 1: Choose and Clear Your Business Name
First, you need to pick a name for your corporation. This name has to be original and unique. No other company in Canada should be using it.
Step 2: Prepare and File the Paperwork
Next, you fill out the official forms, called the Articles of Incorporation. These documents show the government who you are, where your business is located, and how it’s structured.
Step 3: Set Up Your Internal Rules
Once your corporation is approved, you have to organize internally. Create a company’s rulebook with bylaws. This also includes issuing owner shares and naming directors.
Final Thoughts
Incorporating your business helps you with more tax savings and personal safety. But more importantly, it makes your company a stronger, more resilient entity.
If you want to learn more about the power of financial incorporation, our team at Phoenix Knight is happy to help. Feel free to get in touch with an advisor!