Is Incorporation Right for your Business?

• Date: 01 December 2021
• Author: Thorne, Jordan
• Published date: 01 December 2021
• Author: Thorne, Jordan

Before incorporating, a business owner should think about tax implications, a corporation's perpetual existence, and protection from liability.

A common question among small business owners is whether to incorporate a company to carry on their business. However, this simple query often leads to a much more in-depth decision-making process than many business owners expect.

A company is a separate legal entity incorporated for the purpose of carrying on some form of commercial activity. It is important to understand that as a separate legal entity, a company is considered separate from its owners (the shareholders). It can therefore own property and enter into contracts in its own right. Significant implications can arise because of this separate legal entity status that a business owner should carefully consider before incorporating.

1. Tax Implications

   First, a company must file and pay taxes as a separate taxpayer from its shareholders. Corporate tax rates vary from individual tax rates. In the case of small, Canadian-owned companies, the different corporate tax rates are often (though not always) quite favorable. Small, Canadian-owned businesses may also be eligible for the lifetime capital gains exemption on the eventual sale of the...