Sole proprietorships or partnerships are usually the entity of choice. They’re inexpensive and easy to maintain. They don’t worry about hiring accounting companies. However, there is one risk factor regarding these entities: liability.
If you own a sole proprietorship or partnership, then we encourage you to read this article, and seriously consider incorporating your business.
Here we present you some advantages to incorporating your small business, offering suggestions where appropriate.
#1: Limited Liability
If your business is incorporated, the responsibility for liability lies with the corporation, which is a separate legal entity and treated as an individual. No one can touch your personal assets, just those of the corporation. Contact your attorney for specifics on this subject or talk to your qualified accountant
The lifespan of a corporation is unlimited. It can continue to exist long after you or other shareholders pass away or resign. The corporation can also continue even in the case of change of ownership.
#3: Funding Advantages
Corporations have an advantage that other entities don’t enjoy. It’s called equity financing, where shares in the corporation are offered to individuals and companies that have money to invest.
We want to offer a word of caution here. Be careful not to issue so many shares that you risk giving up too much of your percentage of ownership. Have the necessary advisors on hand to plan before you implement the idea.
#4: Ability to Split Income
As a corporation, there is an opportunity to split income among the family members. However, with new rules in place of “Tax on split income (TOSI),” you will need advice from your qualified accountant so that you are not taxed at higher rate personally or attribution tax rules.
There can be a lot to sort out in terms of details. It can be confusing. So don’t underestimate the value of good tax professional that can help you put the pieces together.
#5: Tax Deferral
With the Small Business Tax Deduction (SBD), your first $500,000 of taxable income is taxed at a reduced rate. Federal income tax for income qualifying for SBD in 2019 is 9% Thus providing tax deferral advantage if you retain the money in the corporation rather than withdrawing personally. The maximum combined marginal tax rate is 48% (for Alberta Province).
Whenever there are tax concerns, never try to deal with it yourself. You must seek professional advice. Discuss the matter with your qualified accountant to see if your business qualifies for the deduction.
#6: Credibility & Trust
Somehow, being incorporated lends your business an amount of perceived credibility and trust. Some people will only do business with corporations. You may see an increase in business solely on the fact that you have the word “Inc.” or “Corporation” in your business name.
#7: Protected Business Name
Corporations, on the other hand, have business name protection. Once you’ve registered your corporation’s name, it’s yours, and no one can use it. You, however, can use it in any province. Other entities do not get this name protection.
#8: Peace of Mind
Last of all, if you are concerned about liability with your business or want to avoid being sued, and want to protect your assets, then incorporating will give you peace of mind. It could be worth it.
It’s better to talk to your qualified accountant if there are advantages for you to incorporate the business. Book a free consultation with Versatile Accounting to seek advice on the incorporation of your business. Versatile accounting’s qualified accountant can guide you through incorporation process working along with your legal advisor.