Incorporation represents an important step in the journey of many entrepreneurs. Perhaps you want to hit the ground running with your new business idea, or you’ve nurtured your sole proprietorship and are looking to take the next step. In either scenario, incorporation offers Canadian business owners a host of benefits, as well as a couple extra considerations. CIRA is always looking for ways to support Canadian businesses from the ground up. So, we asked the team at Ownr to give you details on what an incorporation is and how it can help your business.
Oh—and before you decide what structure is best for your business, make sure you protect your brand first by registering a .CA domain!
What is a corporation?
A corporation is its own distinct legal entity, separate from the people that own it. While business owners who operate sole proprietorships are aware that there isn’t any distinction between themselves and their business from a legal perspective, that isn’t the case with corporations.
Benefits of incorporating your business
Incorporating your business has several benefits:
- Limited liability as a business owner
- Running a business comes with an inherent level of risk, and depending on the type of business you run, these can vary for different folks. Creating a separate legal entity helps business owners to mitigate these risks. Should you incur debts, damages or losses, your exposure will be limited.
- Lower tax rates
- Canada has two different tax rates, a personal tax rate, and a corporate tax rate. If you’re able to leave money in your corporation, as opposed to withdrawing it all for personal use, you’ll pay the lower corporate tax rate on those funds, versus the higher personal rate. This enables you to reinvest the money you’ve saved in growing your business according to your needs.
- Better access to capital
- An incorporation opens the door to a range of funding opportunities that aren’t available to sole proprietorships. You can issue shares in order to raise capital in addition to more traditional loan options, many of which will require you to be an incorporation in the first place.
Considerations and risks of incorporating
As with all things, there are some tradeoffs if you decide to incorporate your business. These include:
- Startup costs
- Setting up a corporation is more expensive than a sole proprietorship. The cost of incorporating varies in price depending on your jurisdiction, but the initial investment and legal fees can add up quickly.
- Regulations and filings
- Once incorporated, your business must abide by strict regulations that require accurate paperwork in order to remain in operation.
- Additional legal formalities
- Names like “articles of incorporation” are often intimidating for those new to corporations. Yes, there are additional responsibilities, but they don’t need to be overwhelming. Services such as Ownr can help you with their complete guide to articles of incorporation.
When to choose incorporation for your business
This answer is different for every business owner. Some will wait until their sole proprietorships are growing, while others in industries that come with more inherent risk will want to incorporate from the start.
Regardless of your situation, establishing credibility as a business takes time, and one of the ways to accelerate that growth is by incorporating. In the eyes of your suppliers and lenders an incorporated business communicates an air of professionalism—and you may find some will require you to incorporate before they do business with you.
If you’re ready to take the leap, our friends at Ownr offer incorporation packages, as well as a library of legal documents, a digital minute book plan and so much more. They’ve helped to register over 85,000 Canadian businesses to date, and are ready to help you take your business to the next level.