Congratulations! You started a business and now you might be wondering – should I incorporate my business?
In the early stages of operating your business, incorporation might not make sense for a number of reasons. You might not have enough capital to support the incorporation process along with the required procedures, insurance, and paperwork each year. It typically takes one to three years for a new business to actually start making money. But as your business grows, incorporation will likely make the most sense for two reasons: liability (legal responsibility) and taxation.
One of the first reasons you should consider incorporating your business is to protect your personal assets. When you establish your business as a corporation, you separate your personal liability from that of your business. In the eyes of the law, the corporation becomes responsible for the activities it performs. As a corporation, only the corporation’s assets can be used to satisfy a claim for damage, protecting the owner’s personal assets. Of course, incorporated businesses typically carry liability insurance to protect them from such claims.
The second reason you might consider incorporating your business is to save on taxes. When you incorporate your business, you must file taxes for that business and for yourself. A corporation is a separate taxpayer from its owners. However, corporations are typically taxed more favourably than individuals. These favourable tax rates allow for more flexible ways for your business to retain profits and finance growth. This advantage can help you put more money into new initiatives, ventures, or opportunities for your business.
While these are probably the two most significant reasons you would want to incorporate their business, there are many more questions to ask yourself, and perhaps your business partners, to determine if incorporation makes sense for your business.
If you have questions about the incorporation process and want help to determine if now is the best time for your business to become a corporation, schedule an appointment with us today!