We get many calls each week from individuals considering incorporating their businesses. While each individual situation is unique and has its own set of circumstances, the following is a brief summary of some of the reasons why it may be beneficial to incorporate your business.
Limitation of Liability
The primary reason most individuals choose to incorporate their businesses is to protect themselves and their families from potential liability which may flow from their business. Incorporated businesses are separate legal entities and generally the liability of incorporated businesses does not flow to the individual(s) running the business. If your business should fall on hard times, creditors can usually pursue only the assets of the incorporated company and not of the individual(s) involved with the company. While there are a few exceptions , incorporating a company will certainly reduce the amount of risk exposure to an individual running a business.
Small corporations can enjoy a much lower rate of tax than individuals running a similar business. Depending on the type of business being conducted, your financial situation, your business goals and other family income, there may be great tax savings to be had. Normally a quick call with a business lawyer can determine if there are likely tax advantages to incorporating, while more complicated situations may require the expertise of a tax accountant.
Future Business Planning
By incorporating your business you set yourself up to be able to effectively manage future growth. Should you wish to add investors or partners to your business, having the business reside in an incorporated entity will make that process much smoother and cheaper. Further, should you decide to sell your business at some point in the future, having a corporation will make that process much simpler and will likely result in significant tax savings.
There are a number of other reasons that individuals choose to incorporate their businesses. If more than one person is involved in the business, a corporation is a useful tool to set out the position of each owner. Another reason many individuals incorporate is to add a level of legitimacy and professionalism to their business.
Can I do it Myself?
As you are likely aware, there are many companies on the internet offering cut-rate incorporations. We often get asked why our rate to incorporate a business is higher than the ‘do-it-yourself’ internet incorporations. When using a lawyer, you will receive experience and advice which would not otherwise be available. We ensure that an appropriate corporate structure is used, that all tax and liability concerns are considered, that all shares are properly issued, and that your corporate name will be valid. We will also discuss your financial, tax, and family considerations to ensure that the corporation organization makes sense in the big picture. It is especially important that individuals who have already been carrying on an unincorporated business ensure that the business (and accompanying assets and liabilities) is properly transferred into the corporation in an effective and tax effective manner. While the upfront cost of incorporating correctly may seem like an unnecessary additional expense, it is far cheaper to do it correctly at the beginning rather than trying to fix it after a problem has arisen.