For many Canadian business owners, the question “when should I upgrade?” is a question that comes up often. Knowing the benefits of starting your business in Canada and knowing when to do it can help you make better decisions as your business grows. Here are some benefits of incorporating to Canada.
Types of Businesses You Can Operate in Canada
In Canada, there are mainly four types of businesses which operate. Each business has their own advantages and disadvantages.
Sole Proprietorship
Sole Proprietorship is the most chosen business type by the Canadian entrepreneurs. Sole proprietorship is agile and has a fast setup process, even though the business owner is liable for personal tax rate. This type of entity may be owned by a single owner (sole ownership) or by multiple owners (partnership) and can be easily registered online at any time.
Corporation
Corporations limit personal responsibility and offer lower tax rates and many other benefits. Although a corporation is more costly and time consuming to set up and run, companies with substantial revenue and employees typically benefit from incorporation (more on that in a moment). Many people mistakenly believe that a corporation must be a mid-size or large corporation. In reality, a corporation can be a single-person corporation. Yes, you’ll have some extra responsibilities, but you’ll get all of the same advantages as if you were a single-person show.
Co-operative
Co-operatives come in both for-profit and non-profit options. If you’re looking to set up a multi-partner corporation or for charitable purposes with tax advantages, a cooperative may be the best option for you. If you’re considering incorporating, there are several advantages to doing so. Here are the top reasons most Canadian business owners plan to incorporate.
Partnership
Partnerships are governed by Canadian provincial and territorial laws. These laws define the rights, duties, and responsibilities of partners in a partnership. Canadian partnerships are similar to those found in other countries. Partners contribute resources, such as capital, expertise, or ownership, and share in the business’s profits and losses as outlined in a partnership agreement.
Advantages of Starting Your Business as a Corporation in Canada
There are so many advantages of starting your business as a corporation in Canada.
Limited Liability
Incorporating provides more protection for you, your partners, and your employees. Nobody wants to get into financial trouble, but sometimes things happen. A corporation is a separate legal entity, while a small business in Canada is intrinsically tied to the owner or owners. If you are a founder, stockholder, or/or executive, you are not responsible for the debts of the company. By incorporating, you protect yourself from personal liability for the activities of your business. As long as you have not given a personal guarantee, your business assets, personal assets, and your family home remain safe.
Tax Advantages
The corporate income tax rate is lower than the personal income tax (PIR) rate. If you are the sole proprietor of your business, your income will be taxed at the applicable personal income tax rate.
Tax Deferrals
One of the benefits of working as a corporation is that you can defer income taxes. Unlike a sole proprietorship or partnership, where income is generally taxed in the tax year in which it is earned, a corporation can choose to keep earnings within the company instead of paying them out as dividends to shareholders. This means that the corporation can reinvest profits back into the business for future growth or expansion without having to pay taxes on those profits immediately, freeing up more capital for investment.
Lower Corporate Tax Rates
Corporations in Canada are taxed at a lower rate than individuals. Corporate tax rates are set by both the federal and provincial governments. Generally, corporate tax rates are lower than individual rates. This allows corporations to keep more of their after-tax profits, which can then be reinvested into the business or distributed to shareholders.
Raising Funds
Corporations can issue shares to investors to raise capital. This can be done in the form of private placements to individual investors, venture capitalists or angel investors. Or, they can go public through an IPO to raise capital from the public market. By offering ownership stakes to investors, corporations can raise capital from a variety of sources to fund business operations, growth plans or R&D initiatives.
Build Credibility
Operating as a corporation can also impact the image you present to potential customers. Think of the difference between the name “Johnson Real Estate inc.” and “Johnson, Real Estate”. The name “Johnson Real Estate, inc.” sounds larger and more formal, which may be more significant than you think on your resume. Running a corporation doesn’t necessarily mean the income stays the same, but it does mean that you take your company’s success seriously. Having a corporate history on your resume can make a big difference when you are looking for work or launching a new business in the future.
Incorporate Your Business with IncPass Canada
When you choose IncPass Canada, you’ll get help with everything from filing the necessary paperwork to registering with the relevant government authorities and making sure you’re following all the rules and regulations. IncPass Canada can also help with things like business name registration, getting a business number and guidance on corporate governance. If you’re looking to get your business off the ground, IncPass Canada can help you navigate the ins and outs of corporate formation, so you can focus on building and expanding your business.
