2 MIN READ
The Next Big Step in Business Ownership
When starting up your own business, there's no set to-do list. Nonetheless, many Canadian entrepreneurs have decided to take the plunge and open their own business. According to the Canadian Business Center, there were over 2.7 million self-employed Canadians in 2010. At one point or the other, incorporation flits across the mind of all business owners.
One glance at the slow to recover economy, and it's easy to understand why so many Canadians are starting up their own business. According to Statistics Canada, the unemployment rate in April 2013 remained at 7.2 percent. That's only slightly better than the U.S. unemployment rate in April 2013, which was at 7.5 percent, according to the Bureau of Labor Statistics. However, Canada's employment rate has increased 0.9 percent compared to April 2012, with 163,000 jobs added during that time.
Understanding the Benefits of Incorporating
If you're a small business owner, it's best to know why so many other business owners are deciding to incorporate. First off, your business becomes its own entity, separate of your personal finances. This means that crediting and legal actions go against the corporations assets, not your own. Another reason many businesses owners decide to incorporate in Canada is the nifty tax advantages present. When becoming incorporated, shares become available for multiple shareholders. Selling these shares as a Canadian-controlled private corporation means that capital becomes tax free until up to $750,000. This kind of tax benefit isn't present for business owners who decide to run the show alone.
You can choose your own salary and dividends when you incorporate. These dividends can be used as a way to split income between multiple shareholders or your spouse, if they own shares in the company as well.
Consider the Negatives
One crucial point of interest when owning a business as the sole proprietor is that you can essentially keep things simple. You are solely responsible for the actions and direction of the company. This is one reason that many business owners decide to keep their sole proprietorship because of the simplicity of it all. When choosing to incorporate, understand that it can become expensive and complex. Having a lawyer present while incorporating is a standard procedure.
Entities that incorporated also have to be prepared for the tremendous increase in the amount of necessary paperwork. This paperwork includes tax returns, annual returns, notifications, changes, and the actual articles of incorporation. Also, losses that are a part of a company that is incorporated cannot be claimed by the original owner. Let's say your start up couldn't get off the ground and failed as a result, you can only get back initial investment, not accumulated negative earnings.
The topic of incorporation will come up multiple times throughout a business' lifespan. This is why it's important to understand where the company is and the positives and negatives associated with incorporation. A business that has an increased risk/reward chance and a sizable amount of earnings will have more benefits to incorporating than a smaller entity.