Advantages of Business Incorporation

The most common forms of business structures in Canada are sole proprietorships, general partnerships and corporations.

  • Sole Proprietorship - A sole proprietorship is an unincorporated business owned by one person. Sole proprietorships offer no personal liability protection. Personal assets can be used to satisfy the debts and other legal obligations of the business. Income is taxed personally.
  • General Partnership - A general partnership is an unincorporated business owned by two or more people who are partners with unlimited joint and several liability. Each partner is personally and individually responsible to pay all the debts and other legal obligations of the partnership.
  • Business Corporation- A business corporation is a separate legal entity incorporated with a Provincial or Territorial government, or with the Government of Canada. Shares are issued to the business corporation's shareholders or owners. Funding of the corporation may be achieved via borrowing or through the issuance of shares and other types of securities.

Benefits to business incorporation include the following:

  • Limited Liability - An important advantage is that a corporation allows for limited liability for its shareholders. Unlike partnerships and sole proprietorships, in which the personal assets of the owners could be seized to pay off business debts and other business liabilities, owners of business corporations typically cannot be held responsible for their corporation’s debts and liabilities.
  • Tax Benefits – Business corporations have access to several tax planning opportunities and tax benefits that are unavailable to other types of companies. Benefits include management bonus deferrals, income splitting, capital gains exemptions, and in some cases, reduced tax rates, reduced tax liability, and tax credits are all benefits that are available only to incorporated businesses.
  • Corporate Name Protection –After a business name has been registered by one corporation, no other business is permitted to register that same name (or, in some jurisdictions, another name that is similar enough to cause confusion). Corporate name protection safeguards your company's image and brand.
  • Continued Existence - As a corporation is a separate legal entity from its shareholders, it continues to exist even if its principals change over time. The corporation can continue to operate if the shareholders, directors or officers die or leave the company, or if the business changes ownership. This provides more stability than an unincorporated business which relies on the participation of its owners.
  • Access to Capital – Corporations are typically able to gain access to capital more easily than unincorporated businesses. Corporations can also issue a variety of securities, such as bonds, shares, and debentures to raise additional funds. This allows incorporated businesses to be much more flexible and creative than non-incorporated businesses in securing capital.

At New Business in Ontario, we have more than 15 years of experience in providing cost-effective, professional business incorporation services throughout Canada. Our skilled team is standing by to help you!

Articles on this blog are general in nature and are provided for informational purposes only. Use of this blog does not provide or replace individualized legal advice and does not create a solicitor-client relationship with our firm. Users who require legal advice on a particular matter should consult directly with Mr. Eric Cohen, Barrister & Solicitor, an Ontario lawyer or a competent lawyer in their Province or State.

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