Should you incorporate your business? The advantages and disadvantages of incorporation
In this video, you’ll learn about the advantages and disadvantages of incorporating to help you understand the options you have for your business. Business owners are faced with an interesting dilemma when it comes to choosing between being a sole proprietor or incorporation. Hopefully, this video will give you a place to start learning and if you need some help or advice, let us know and we’ll be happy to get you and your business on the path that’s right for you.
As a business owner, should I incorporate?
As with all things legal, it depends. But the first step is knowing the advantages and disadvantages of incorporation vs sole proprietorship.
Advantages of Incorporation
So let’s have a look at some of the advantages on incorporating your business to get things started.
A corporation is a separate entity from you for tax purposes. Incorporating may help you save on taxes in several ways. In general, corporate tax rates are lower than personal tax rates, but your company has to generate a substantial profit before this becomes an advantage.
If your spouse or children are shareholders in your corporation, you may be able to redistribute income from family members in higher tax brackets to those in lower tax brackets. This is a process known as income splitting.
Unlike sole proprietors or partnerships, money that comes in does not need to always be drawn out. This lets you keep money inside the corporation for longer until you actually need to draw out the money. This flexibility allows you to choose when you pay taxes, instead of always paying taxes when you make money.
Ease in Raising Capital
While corporations can obtain additional capital by taking loans, they also have the ability to issue and sell shares to raise money.
Protection from Creditors
A corporation’s debts and assets are separate from those of its owners. If your corporation has creditors, then they will be able to sue for the assets the corporation owns. But they will not be able to make claims against your personal assets.
But incorporation is not for every business.
Disadvantages of Incorporation
There are certain advantages to incorporation but they need to be weighed against some disadvantages.
For example, there are additional costs, paperwork and documentation involved in registering and maintaining a corporation. This includes minimal lawyer fees, annual accounting fees, and annual banking fees.
Deciding which is right for you can be difficult and confusing.
But we can help you choose & implement what is right for you and your business.
To learn more about whether you should incorporate, contact Winright Law today: