Incorporation Is It Right For My Business?

Once in a while, faced with the decision of whether to make your company a legal person or to not take this step, you may feel like you're at an impasse. With such a big decision in front of you, it can be tough to know where to begin. But incorporating is something that needs to be done with careful consideration of its benefits and implications for your business.

There are a lot of reasons why your business should incorporate. Incorporation brings formal structure to your organization, which allows you to protect your business, its property and its personal assets from loss and liability. It also makes merging with other businesses easier, as well as some tax benefits that are important for the long-term health of any company's finances.

The choice to incorporate is also a personal one. In Canada, there are two types of incorporations: public and private. Private corporations offer a lot in terms of flexibility - if you want the ability to make decisions quickly and avoid unnecessary red tape or large ongoing fees for mandatory filings and reporting, this may be the route for you.

On the other hand, public corporations can allow your business to participate in lucrative government contracts and benefit from the stability of being a well-known entity. It is important to note that there are some disadvantages to incorporating as a public corporation, such as having more paperwork and higher filing fees.

So it's really up to you! The best way to determine what type of corporation is right for you and your business is by getting advice from an experienced Canadian incorporation lawyer . Your lawyer will be able to help you weigh your options and make a decision that works for your business in the long run.

While deciding whether or not to incorporate, you may find yourself thinking about the benefits of corporate personhood. There are some important features of a corporation that can provide huge advantages for businesses and their owners. Benefits include:

Access to greater assets, authority and control over profits and investments without personal liability for debts;

A shield from lawsuits and other personal liabilities;

The option to become a public or private corporation as needed; and

Immunity from the legal costs that are usually associated with litigation. ( Public corporations are not liable for any losses that occur during the normal course of business unless they were willful. [1])

But it's important to note that these benefits only apply to corporations incorporated in Canada. If you're thinking about incorporating elsewhere, it's important that your choice of location is based on the advantages and disadvantages of incorporation in that country rather than on the premise that incorporation in other countries will give you these benefits.

In addition, there are some disadvantages of incorporating as a corporation. You must pay more for legal counsel and for other paperwork requirements if you create a private company, for instance. If you would prefer to avoid paying higher legal fees and expenses by having your business registered as a public corporation, then be aware of the implications of doing this. Other disadvantages include:

Potentially lengthy and costly corporate elections;

Difficulty in buying and selling shares (unless you're a public corporation) since shares are usually not transferrable; and

Limitations on the types of business ventures that can be undertaken by a private company. The same restrictions on the type of business that applies to individual corporations also apply to companies. (Many types of business such as motor vehicle dealers, corporations involved in alcoholic beverage sales, chewing gum manufacturers, manufacturers of toxic or other hazardous substances and contractors are not permitted.) Furthermore, "sole proprietorships" are usually prohibited by law in Canada. Sole proprietorships are often prohibited in other countries as well. [2]

There are also some legal advantages to incorporating that you should be aware of. Corporations are legally recognized entities and they have certain rights, powers and obligations that individuals don't have. Corporations can enter into contracts and own property, for example, and their shareholders (owners) are not personally liable for the company's debts or liabilities, as long as the corporation remains solvent. This feature is especially useful to small businesses where all of the owners' personal assets might be at risk if something goes wrong. A corporation can limit who can benefit from its profits by setting salary limits for top executives who choose not to buy any shares in the company.

The formal steps to incorporate are basically the same in all provinces and territories, the most common form being to apply for a federal incorporation through Corporations Canada. All you need is a credit card and your company name, and it's easy to complete an online application or order an application kit. Corporations Canada will send a package of forms, annual fees and other materials so that you can fill them out. You'll also be asked to choose your company's share structure, which means deciding how many shares you want, how much they'll cost and how many you'd like to buy yourself as part of your initial investment. These factors will determine the amount of cash that you'll need for legal costs at the outset.

If you've decided to incorporate and are ready to take the next step, the information above should give you a good idea about what to expect. Remember, though, that there is never one-size-fits-all advice when it comes to forming a business. If you're still unsure about what's best for your company and how much time and money it will require, don't hesitate to contact an experienced incorporation lawyer in Canada - they can help you make the right choice!

If you are considering incorporating your business in Canada, contact us for a consultation today. Call us at 1 (800) 359-0090 or email us here .

1 - Corporations Canada Incorporation Factsheet: http://www.cic.gc.ca/english/corporations/factsheet.asp#faq_public

2 - The Law Society of Upper Canada provides information about how sole proprietorships may be maintained in Canada, including specific information about your province: http://www.lsoc-saskatchewan.org/nrg_tcd/1072_soleproprietorship/.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Conclusion

For the majority of small-business owners, incorporation is the best way to protect their business and make it a success. The process of incorporating is easy, straightforward, and historically low-risk. But if you're new to entrepreneurship or are considering forming a new company, it's also important that you don't overlook the many other advantages of incorporating rather than operating as an unincorporated entity.

For information on cost estimation at various stages in the formation process or about how to find a lawyer who can advise you for free, click here.

Incorporation Is It Right For My Business?

Incorporation Is It Right For My Business?

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