Is incorporation right for you?
When you launch a business, the type of corporate structure you choose matters. Here's what to consider to decide if incorporating — creating a corporation — is right for you.
Benefits of incorporating
Separate legal entity
Incorporating your business creates a new legal entity, called a corporation.
In Canada, a corporation has the same rights as a real person. It can own property, get loans, enter into contracts, sue or be sued, and even be found guilty of committing a crime.
When forming a corporation, owners transfer money, property, or services to the corporation in exchange for shares. The owners of these shares are shareholders, and they have limited liability.
Shareholders are not responsible for the corporation's debts. If a corporation goes bankrupt, incorporation protects shareholders (who will not lose more than their investment).
Lower tax rates
Tax authorities tax corporations separately from their owners. Corporate tax rates are generally lower than income tax rates for individuals.
Better access to capital and grants
Compared to other kinds of business structures, corporations can often raise money and grow more easily because they:
- can issue bonds or shares to investors (rather than rely on their own money and loans for capital); and
- borrow money at lower rates.
Financial institutions see loans to corporations as less risky than those given to unincorporated businesses.
A corporation continues to exist unless it winds up, amalgamates, or gives up its charter for reasons such as bankruptcy. This is not the case for other types of business structures, which cease to exist when owners die.
While incorporating provincially or federally have common benefits, there are extra advantages to incorporating federally.
Use your name across Canada
As a federal corporation, you can operate your business using your corporate name right across the country. This is important if you expand your business to other provinces or territories and want to use the same name.
Choose where you want to set up your business ‒ your corporation's official address can be in any province or territory. A federal corporation can also hold its annual meeting outside of Canada or even digitally.
Federal corporations are recognized around the world ‒ an important consideration if you plan to expand outside Canada.
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