Incorporation outlines the process of establishing an independent business structure and legally declaring business as separate entity from its owners.
Incorporation outlines the process of establishing an independent business structure and legally declaring business as separate entity from its owners. Incorporation offers many benefits that help the business thrive and develop in the long run, including liability protection and tax deductions, and increase in capital through sale shares.
Forms of Business Structures
The most prevalent business structures in Canada are sole proprietorships, general partnerships and corporations.
This is the simplest of all business forms under which one can operate a business. It is an unincorporated business owned by a sole individual who is personally responsible for any debts and/or other legal requirements. Sole proprietorships are non-legal entities, offering no liability protection.
A general partnership is an association of two or more individuals running a business corporation with the intention of deriving profit. The partnership is based on unlimited joint and several liabilities, which means each partner is responsible for paying debts and other legal obligations regarding the business and the partnership.
This is the most common form of business organization. It is authorized by the federal and provincial grant, and recognized as separate legal entity from its owners. A corporation does not dissolve when its owners (shareholders) change or die, and the owners of a corporation have limited liability.
Benefits of Business Incorporation
There are numerous benefits that result from incorporation. The most important advantages that business owners need to be aware of are as follows:
Incorporation results in the creation of a corporation or company which is a separate legal entity in itself, also exercising similar laws and obligations under the Canadian Law as a person. A corporation or company can gain assets, sue or be sued, establish contracts but will also cease to exist once the corporation is annulled.
Incorporation can limit the accountability of the business’ shareholders, as they are generally not responsible for the company’s debts. If the company goes destitute, a shareholder will only lose their investment. Creditors also are unable to sue shareholders for any debts acquired by the company. The Canada Business Corporations Act (CBCA) enforces various obligations on directors.
The corporate tax rate is generally reduced since companies are taxed independently from their owners. Therefore, incorporation results in fiscal advantages, as it can help save money. Pay family members
Corporations can raise money more efficiently than other types of businesses as in many cases; they do not have to completely rely on their personal money and loans for capital. They are able to expand and develop. Financial institutions can also loan out money to corporations at comparatively lower rates as less risk is involved.
Corporations continue to thrive even if every shareholder were to die, unlike partnerships or sole proprietorships. This is because the corporation’s ownership is transferred to the directors’ heirs. This guarantee of ongoing existence provides the company with stability, and chances of more favourable financing in the long-run.
However, if you choose to incorporate federally, then heightened name protection, location flexibility and recognition are additional benefits.