You want to start a business. Maybe you have an idea, a side hustle, or just a dream. Once you’re ready to get going, things can end up moving way too fast. Soon you’ll have a pile of tasks you need to take care of so you can get from 💡 to 🚀. Incorporating your business won’t build it, but it will certainly hold you back if you don’t do it in time. It’s definitely worth getting ahead of the curve on this one.
The Advantages of Incorporating
When a business incorporates, it gains the rights and responsibilities of a person 👶. A corporation’s income can be taxed, can go into debt and can be held accountable for its actions.
Lower taxes (!!!): One of biggest advantages given to corporations is that compared to an individual, a corporation benefits from a lower tax rate. So if you find your business is growing and you want to save some cash at tax time, consider incorporating and drawing a salary from the business 💸. Your salary will be taxed at individual rates while the money retained by the company will be subject to corporate income tax. Feeling it?
Protection: There are other protections you get by incorporating too. When a corporation fails, shareholders only lose the amount of their investments, creditors can’t come after them for more. Likewise, if the corporation is sued, it’s the assets of the business, and not the individual assets of the shareholders, that are at stake. That means that your business computer could be at risk, but your personal MacBook air with all the decals is safe! That’s quite different from a sole proprietorship, where you and all of your assets are on the hook for lawsuits and financial losses.
The Disadvantages of Incorporating
Incorporating isn’t all 🌈 and 🍭s. Becoming a corporation requires tax filing and fees, not just at the time of establishment, but on an ongoing basis. This may not matter if you’ve got someone taking care of your paperwork, but can be a huge headache if you’re doing it yourself. You can hire an independent bookkeeper or accountant to help you with this until your business grows large enough to need the attention of a full-time finance expert. Let’s hope you get to that point!
How to Incorporate
Before You Start
You can incorporate in your province or at the federal level. If you don’t plan on doing business outside of your province, provincial is the way to go. Otherwise, incorporation can happen at the federal level. You’ll still need to register in each province where your company will operate. You also need to make sure that at least 25% of your directors are Canadian residents.
Choose Your Own Adventure
There are three options to incorporate and register your business:
- Hire a lawyer to take care of everything on your behalf. This is best for complex situations but can be costly with fees ranging from $800 to $2000 or more beyond government fees.
- Consult the government of Canada’s website. This option is best if you feel comfortable filling out legal documents yourself.
- Use NorthOne’s Incorporate in Canada platform. This option doesn’t cost a dime beyond government fees, is simple to use, and will give you everything you need to get started.
What should you do next? We’ll let you know if our next article “What To Do After Incorporating”.