Choosing whether to incorporate your business may seem overwhelming. Perhaps it may seem too expensive an undertaking or too time consuming with all the paperwork that is required, both upfront and annual.
If these things are so, why should a small Canadian business consider incorporation? There are benefits to incorporation that you should consider before shelving the idea altogether.
Financial Considerations
There are several different financial benefits that come with incorporation. Many experts consider your chances of securing financing for your business to grow if you are incorporated. Lenders, it is thought, consider a small business that has incorporated to be more serious and established, and therefore, less of a risk to support.
If you incorporate a business in Canada, you make your company eligible for some specific federal programs such as tax credit and internship programs. If you do not incorporate, the Canadian government will not consider you for these or similar programs.
When it comes to tax time, incorporated small Canadian businesses can claim the small business deduction net tax rate. This rate is significantly lower than other business net tax rates, at times up to 8.5% in difference.
Legal Considerations
Most consultants will recommend that you incorporate if there is a chance your business involves the possibility of being harmful to your personal finances. You do not want to put yourself in a situation where you would be wiped out financially.
By incorporating, the worst that would happen to your business would be the loss of its assets. This is a much better situation than the loss of everything you have personally, in addition to your ability to earn an income.
You will also need to consider incorporation if your small business involves working as a contractor for a larger corporation. Many large companies will not hire a contractor unless they are incorporated.
Public Opinion
As with lenders, the public and your potential customers often see an incorporated business as a stronger and more trustworthy company. Consumers are more likely to hire or purchase products from a business that is incorporated.
Fair or not, there is a certain prestige that comes with having Ltd or Inc. behind the name of your company. Your business will take on an air of professionalism that goes a long way with consumers.
Although at first it may seem like there are a number of time-consuming steps in order to incorporate your business, there are also a number of benefits to incorporating your small Canadian business. You may find that once you have gone through the initial incorporation process that the day-to-day benefits vastly out-weigh a little bit of front end work.
Begin with a concerted analysis of your company and its needs. With that in mind and a review of the advantages noted here, your choice should be clearer than you might first have expected.
Photo credit: Victor1558