Should I incorporate my business?
There are
several features that are unique to a corporation which make it the favoured
legal structure for many businesses. These include:
Limited Liability. A primary advantage to incorporating a
business is the limited liability conferred upon its shareholders. A
shareholder's liability for the debts of the corporation is limited to the
amount of funds the shareholder has invested in the corporation. Creditors
only have rights against the corporation itself and not against the
shareholders.
Tax Advantages. There are tax advantages to
incorporating your business, such as lower income tax rates and carrying
forward losses of previous years to offset profits in subsequent years,
among others.
Raising Money. A corporation may offer greater
potential sources of capital than other business forms (such as sole
proprietorships and partnerships). Corporations can issue various classes
of shares (in addition to other debt instruments such as bonds) to raise capital,
which, typically, is more attractive to investors.
Perpetual Existence. A corporation has the feature of
perpetual existence. It is not dependent upon the life of its
shareholders, directors and officers and will not be affected by changes
in, deaths or retirements of its members since the corporation is
considered a separate "person".
Credibility and
Prestige. Incorporation may help provide
your business with credibility and prestige in its dealings.
On the other
hand, incorporating your business is subject to the following formalities:
Start-Up Costs. The initial start-up costs (i.e.,
government fees) may be expensive when compared to other business
structures (sole proprietorships and partnerships).
Maintaining of
Corporate Records. A corporation is
required to diligently maintain its corporate records and hold meetings,
elect directors and provide shareholders with certain information.
Double
Taxation. Income generated by a corporation is taxed at both the corporate
level and shareholder level. A corporation must pay taxes on its income and the
shareholders must pay taxes on the dividends (i.e., profits they receive from
the corporation). However, much of this double taxation may be minimized by
offsetting the corporation's business expenses (i.e., salaries) with its
income.
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