If you’re business is currently registered as a sole proprietor, incorporating your business may be something you haven’t given much thought to. You may be wondering if incorporating is a good idea, or the timing of it. There are a number of good reasons why you should move your business to corporation status. Here are just a few of thme.
One of the main advantages of incorporating your business is that you can protect your personal assets against business losses. As a separate legal entity, a corporation is responsible for its own debts, and your personal assets are not required to pay your business debts. If you are self-employed or run your business without incorporating it, your personal assets are at risk, as incorporating a business is the only way to protect your personal assets. Business owners can do business without risking their personal assets. Whereas, the sole proprietorship and partnership have no limited liability and their personal assets can be used to repay the debts of the business.
Easy Access to Capital
Banks and other financial institutions rely more on incorporated businesses than on individuals for loan disbursements. It is easier for companies to raise capital from banks, as they are considered less risky due to their business continuity model. Other than that, incorporated businesses have more stable revenues, and financial institutions lend money to businesses with more confidence than unincorporated businesses.
The benefit of incorporation is not limited to having access to business finance but it goes beyond finances. Many stakeholders often perceive businesses to be more stable than unincorporated businesses. Incorporating may help a new business establish credibility with potential customers, employees, vendors, and partners.
Corporations are the most sustainable form of business, and the legal structure of the corporation is more durable than sole proprietorship and partnership businesses. A corporation can continue its business operations for an indefinite period, regardless of what happens to its directors or shareholders. A corporation does not cease its business operations because a director leaves the company. A corporation is always based on the concept of business continuity and the perpetual succession will further strengthen the continuity of business operations.
Corporations often get tax credits by filing annual corporate tax returns with the CRA. Tax rates are much lower on the income of a corporation than on the income of an individual. It is always better to incorporate a business in Canada. Since incorporated businesses generate employment opportunities and contribute to the national economy, the CRA has many federal and provincial tax credits for corporations. For information on the types of tax benefits, your business can obtain by incorporating as a corporation, you can reach out to us at GTA Accounting.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.