Legal Matters: Why should you incorporate your business?

This article was originally published by The Hamilton Spectator.

Q: Why should you incorporate your business?

A: While incorporating your business may seem like a daunting or unnecessary process, there are many beneficial reasons for taking the steps to do so.

1.       Liability

A corporation is a separate legal “person” from its shareholders (i.e., owners). This distinction limits the personal liability of those shareholders, as shareholders are not typically responsible for the corporation’s debts unless they have personally guaranteed such debts. Accordingly, this provides protection for shareholders’ personal assets.

2. Tax benefits

Incorporating can provide significant tax benefits. For example, corporations provide the ability to defer income tax payable by not withdrawing all profit out of the corporation in the same year it was earned. This can be helpful for those who earn more than they need to cover living expenses. Income tax would then be payable at a corporate rate on funds left in the corporation, which is typically much lower than the personal income tax rate, and is only payable personally by the shareholders once funds are withdrawn from the corporation. Further, in some situations, like when family members are involved in the business, income can be split between shareholders, which can also have personal tax benefits.

3. Credibility

Incorporating can demonstrate the credibility of your business to potential customers, suppliers, lenders, employees, and more. Incorporation shows that you’re serious about your business and thinking beyond the short term.

These are a few key benefits, but there are other compelling reasons to consider incorporation for your business. In most cases, the benefits of incorporation largely outweigh the upfront and annual costs of undertaking the process.

To learn more, you should explore your options with a lawyer and seek professional accounting advice. Feel free to contact us if incorporating might be beneficial for your business.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Ross & McBride professionals will be pleased to discuss resolutions to specific legal concerns you may have.

Adrianna Inneo
Adrianna Inneo
P: 905.572.5808