Without a doubt, all business owners have considered incorporating their business at one point or another. While incorporating your business certainly provides many advantages, it also comes with its fair share of disadvantages, so it’s important to consider how incorporation will impact your business. The good news is that you can change the legal structure of your business at any point in time, so there’s no need to rush to a decision. In fact, a lot of small businesses start as sole proprietorships, or partnerships, and become incorporated once their business is more established.
To dive a little deeper, let’s take a look at what business incorporation actually is, what the pros and cons are, and what the steps to incorporating your business look like.
The term corporation is latin for corpus, which means body. So a corporation is basically a body, or a legal person in the eyes of the law.
An incorporated business is the same thing as a corporation, and is considered to be a legal entity that is separate from its owners and/or shareholders. Incorporation isn’t legally required, but it will bring some legal protection for you as a business owner and reduce your tax liability. It also has other benefits that will help your business grow.
Let’s take a look at some of those benefits.
Advantages of incorporating a Business
One of the core advantages of incorporating your business in Canada is the separation of your personal and business obligations. You will not be held personally liable for any debts or actions of the corporation. This means that if your business doesn’t do well, your personal finances and assets will still be protected.
Here are some other advantages of incorporating a business:
- Raising capital is easier — Incorporated businesses can sell shares and equity to investors to drive growth
- Transferable ownership —The entity of a corporation has an unlimited lifespan. That’s why you can sell your business or transfer ownership to someone else at any given time
- Continuous lifespan — As mentioned above, a corporation has an unlimited lifespan, which means if you sell your business or if shareholders die, your business will continue on
- Tax Advantages — Once your business is incorporated, you can determine when and how to receive income. Instead of receiving a salary, you can take income, at any time, in the form of dividends, which will lower your tax bill. Dividends are basically payments to shareholders from your business’ after tax earnings.
Disadvantages of incorporating a business
- Lots of paperwork — Especially for small businesses, managing a corporate entity requires a lot more paperwork and recordkeeping, which can be challenging. Corporations are required to maintain a minute book that contains corporate documents.
- Registration expenses — They’re very expensive to setup, due to their complexity compared to sole proprietorship or partnership. The fees that you have to pay for incorporating a small business are in the hundreds of dollars, plus other maintenance and accounting fees
5 Steps to Incorporating a Business
Let’s go through the steps in incorporating your small business in Canada:
Choose a business name
First, decide what you want to name your business, as this is how your customers and clients will recognize you. Keep in mind that it is your business’ legal name and does not necessarily define your brand. For instance, your legal business name can be “Booklet Technologies” but your domain be www.booklet.ca.
Also, make sure that your business name falls under these 3 legal requirements: 1. Distinctive element, 2. Descriptive element, 3. A legal ending. Learn more about choosing the right business name.
Get a business number
A business number is basically a 9-digit account number that identifies your company. Here’s where you can register. If you are incorporating your business in Quebec, you need to register for
Incorporate Federally or Provincially
You have the option of incorporating your business either provincially or federally. There aren’t a lot of differences between the two; as they both allow your business to operate in all provinces and anywhere else in the world.
The main benefit of incorporating federally is that your business’ name will be registered throughout Canada, rather than just a province. For this process, you will have to either file an online form for $
You can also incorporate your business provincially, but keep in mind that the process is different in each province. So it’s best to decide which province you want to run your business in, then reference the provincial incorporation process of that specific province. Check out all the provincial and territorial registrations.
Establish a Board of Directors
A director(s) has an overall responsibility of the corporation. They are appointed by the shareholders, and collectively are called the Board of Directors. It’s quite common in small businesses for one person to assume the role of both director, shareholder, and officer.
There are, however, some eligibility requirements for the director of a Canadian business. They must be at least 18 years old, be an individual (not a corporation), and not be bankrupt
Corporations Canada is in charge of making sure all relevant forms and articles required to incorporate are successfully completed.. This includes evaluating your application for the necessary documents, forms, and signatures, and ensuring all related incorporation expenses have been paid.
Ultimately, incorporating your business takes careful planning. Do your research, speak with advisors and ask other small business owners for advice. Take your time and consider all possibilities of incorporation and their impact on your future business goals. The great news is, no matter what you decide to choose, you will be eligible to apply for a loan with Lending Loop!