If you are a self-employed person operating your own small business or an independent contractor, there are many advantages of incorporation, including the following:
1. Limited Liability
The primary reason that self-employed individuals choose to incorporate their business is to limit their personal liability in connection with that business to their investment. By conducting business through a corporation, a distinct legal entity, individuals are able to separate their business assets, by way of shareholdings, from their personal assets.
2. Tax Optimization
Canadian tax legislation provides a small business deduction on the taxes payable on the first $500,000 of active business income earned in Canada of a Canadian controlled private corporation. If distribution of the income to shareholders is deferred, this deduction allows the corporation to retain a greater amount to invest back into the corporation. Income can also be distributed to family members in lower tax brackets as dividends resulting in tax savings for your family.
3. Succession Planning
As a corporation is a distinct legal entity, it has a perpetual existence. Therefore, rather than ceasing to exist when the shareholders become deceased, corporations continue. For this reason a corporation is a tool used for succession planning as a practical and seamless method of passing a business from one generation to the next or from one owner to another.
4. Raising Capital
Issuing shares to investors is a convenient way to raise money for your business while maintaining control of your corporation.
Individuals and corporations often prefer to do business with corporations as there is a perception that corporations are more stable than other business entities.
If you are interested in learning more about incorporating your business, the Walsh LLP Business and Corporate Group is able to provide more information, ideas on how to best structure your corporation, and general advice on operating your business.