Incorporation is the legal process whereby a newly formed business entity is legally created in order to protect the owners of a business from legal liability. The incorporation process is governed by either the federal or provincial laws under which the corporation was established. Therefore, it is fundamental to employ someone familiar with the incorporation laws and regulations of your jurisdiction and the governing body that regulates your profession. There are a number of steps that one must take in order to incorporate their business; at SRJ Chartered Accountants located in Toronto and Mississauga, we make this process simple for you by walking you through this and providing guidance on requirements that you must be aware of to move forward.
There are several advantages to incorporating your business. Using your personal identity to get a business started can be common, but as time goes on and your business starts to grow, it is not a good long-term strategy. If your company should encounter legal problems or have liabilities such as those owed to creditors, you will be personally exposed to the debts that the business may have accrued. Incorporating can help shield your family’s personal assets from being exposed to such liabilities.
Once a company is incorporated, the business will become subject to lower corporate income tax rates. Corporations are typically subject to more favourable tax rates as compared with the individual tax rate. Lower tax rates result in more money being available to help grow the business. Furthermore, corporations often also allow for income splitting between family members which can also result in further tax savings in comparison to operating a business as a sole-proprietorship. Income splitting is done using family members such as spouses, parents and children; by utilizing family members in lower tax brackets, you may be able to bring down your families overall tax burden by income splitting using a corporation.
In certain cases, some professional bodies will allow their members to register their business through a corporation and establish what is known as a “Professional Corporation”. A professional corporation is similar to that of a regular corporation, except for the fact that it is restricted to only providing certain specific types of professional services, as outlined per the governing body that the profession in regulated by. Specifically, the following professions are allowed to establish a professional corporation:
While establishing a professional corporation may have many advantages, they can get rather complicated to setup and thus one should seek professional advice in doing so.
If you are looking to incorporate your business, contact SRJ Chartered Accountants in Toronto or Mississauga. We look forward to guiding you through this process and putting your business on the path to success. Learn about our litigation support service.