Why is it better to incorporate business???

January 30, 2018 | Written by: Sohail Afzal

Tax Accountant Toronto

Your business is doing well! Why not incorporate it? The question is asked so often. Are there any benefits of doing so? The question creates its mark in many small business owners who started their businesses as sole proprietors in which they and their businesses are essentially one and same. Switching to a corporation can offer a range of advantages for entrepreneurs. Among those, the most important is PROTECTION i.e any debt or legal actions are claimed against the business and not against the business owners hence the entrepreneurs enjoy liberty and comfort for not being sued and rather put their skills and energy towards the growth of the business that otherwise, spoiled. The advantages of incorporation include:

Separate Legal Entity

Corporations are artificial persons according to law. They are considered separate from owners/directors/shareholders and therefore any legal action can only affect the corporation and not the owners. Similarly, the corporation can initialize any legal suit against any person or other business entity.

Limited Liability

The liability of an incorporated business is limited to the paid-up capital. I.e. the shareholders are liable to the extent of the value of shares they hold. As corporations are separate from their owners, so it allows protection to the personal assets of owners.

Brand Building and Name Protection

When a business goes into incorporation, its name achieves a legal status restricting other entities from naming their business a name that is similar to its corporate name. As it grows, the name becomes a brand in market. Incorporating protects that name and brand from being stolen.

Enhanced Credibility

The suffix “Inc/PLC/LLC/Ltd” with the business name can add instant legitimacy and authority. Consumers, vendors, banks, and partners are most likely to do business with corporations. This would definitely attract the general public to invest in that business.

Independent Existence

Unlike a sole proprietorship or partnership where the existence of a business is dependent on the existence of the sole owner or partners, corporations can continue to exist even if the ownership or management changes.

Easy Transferability of Ownership

It is always nice to know that the ownership interest you have in a business can be readily sold, transferred or given away to another family member. You don’t need to retitle property or make new deeds or take complicated time-consuming administrative steps. Just sign and endorse the share certificate and the trick is done.

Possible Tax Advantages

Small Canadian controlled private corporations are taxed at approximately half the regular rate on the first $500.000 of active business income in each year. A corporation also has additional tax planning and income splitting arrangements available. Why is it a good idea to hire a professional for incorporating business??? Would you like to book a direct flight to London (where you have an important assignment which could enable your business to earn more profit) and pay additional 200 or you would prefer to save 200 and spend 2 additional hours booking a connective flight? A wise decision always yields far better.  The value of your time is a crucial component in making that decision. If you spend 10 hours doing your tax return and you value your time at $50 an hour, then the cost of doing it yourself is $500. So it makes sense to hire an accountant to prepare the tax return for you, and of course, a professional accountant can do it for you more quickly and accurately. Incorporation is a typical process. There are always some legal and tax obligations. By incorporating your business, you actually form a new foundation for your business. Better let the professionals make that foundation for you.

Sohail Afzal CPA Toronto

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.

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