How a Business Benefits as a Corporation

Regardless of size, there are some benefits of incorporating a company.

Most businesses start as sole proprietorships in Canada. Yet, there are distinct advantages to properly structuring a company through incorporating for any size of business. Some of these are outlined here.

Protection of Personal Assets through Incorporation

As corporations are considered separate legal entities, there is a division between the assets owned by the company and the assets owned by the owners of the company. This offers a level of protection, should it ever be needed, from creditors and vultures. When someone is trying to recover debt from a corporation, they can only go after the assets of the corporation (unless the owner has signed a personal guarantee). This protects the owner’s personal assets.

Additional Credibility as a Corporation

When people are looking at company’s and considering whether to do business with them, the name is often the first thing that they see. If they see that the company has the Ltd. or Inc. of a corporation as part of that name, it adds to the credibility of the company and gives more confidence in those dealing with that company. It kind of lends instant authority that consumers, vendors, and business partners see.

Name Protection for Corporations

If a company is incorporated, then the name of that company is protected and cannot be used by any other company in their jurisdiction (province or federal, depending on incorporation type). This is almost like owning a trademark on the company name and protects the owners from having other people operate under the same company name. Only corporations have this protection!

Perpetual Existence of Corporations

A corporation can continue forever as the same entity, even after the sale of the company or death of the owner. It does not even matter if management changes, the name and corporate identity continue to exist.

More Tax Flexibility in Corporations

There is more flexibility in how the profits are paid to owners of the corporation, thus giving more flexibility on how taxes are handled. As well, corporate tax rates are different than personal tax rates, which can offer some savings, if handled correctly. This is particularly useful with the Small Business Tax deduction, and the advantages that offer with the lowered tax rate. [Please use a tax advisor for any tax issues.]

Raising Money is Easier as A Corporation

There are more options for a corporation to raising money than with a proprietorship. Corporations have the same options of borrowing and incurring debt, they also have the ability to issue shares, which proprietorships don’t. This means that they can sell equity in the company. Such methods of raising money don’t require interest payments and aren’t shown as debt in the books, but they do reduce the ownership percentage of the company for the original owners.

So, there are several advantages of incorporating a business. The main drawback of incorporating is increased costs, because it costs to incorporate, and there is the extra tax return that must be filed (which increases the accounting costs). There is also a small amount of increased paperwork, as annual corporate returns need to be filed each year. These disadvantages are small, considering the long term growth and potential benefits of incorporating.