Incorporations 101: Five Reasons to Incorporate Your Business
If you run a small business, you may have wondered about the benefits of incorporation. Corporations enjoy many advantages that are not available to unincorporated businesses, such as sole proprietorships and partnerships. Here are a few key reasons why you should consider incorporating your business.
- Separate Your Personal Assets from Your Business. When you operate your company as a partnership or sole proprietorship, there is no separation between you and your business. Your personal assets and savings are considered as part of the business, and you can be forced to use those personal assets to pay outstanding business debts, taxes and other liabilities. Operating your business in this manner can place your personal assets and savings at risk. Incorporating provides a separation between your personal assets and the business, as corporations are treated as independent legal entities that are separate from their owners. As long as necessary corporate formalities are complied with, incorporation can provide significant protection for your personal assets in relation to your business.
- The Ability to Issue Shares. Incorporating your business will give your business the ability to issue shares in order to raise capital. Share issuance is not available to unincorporated businesses, and it can be an effective way to fund your business.
- Greater Credibility. After incorporating your business, you may find that your company is viewed more positively in the eyes of your customers. This enhanced credibility may help you gain attention in your industry and enhance profitability.
- Tax Benefits. Incorporated business are eligible for many tax benefits that do not apply to unincorporated businesses, including the Lifetime Capital Gains Exemption and the Small Business Deduction, which are both available to certain Canadian Controlled Private Corporations.
- Perpetual Existence. Corporations have perpetual existence, which means that their existence is not dependent on the lives or participation of their owners. A corporation can continue to operate after the death of one or more of its shareholders.
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.