Every business changes over time. Businesses change the products they sell, their corporate culture and the people who keep the company running. Many companies also go through changes in their structure.
For example, if you are a small business owner, you may be thinking about changing your business structure by incorporating provincially or federally. To determine if this might be a good option for you, consider your business’ readiness, strategic goals, external factors and the opportune time for incorporation.
Why Do You Want to Incorporate?
There are numerous benefits to incorporating in Canada. One of the most compelling reasons to incorporate is the limited liability protection it provides. This means that the personal assets of the shareholders (owners) are generally protected from business debts and liabilities. Incorporating a business in Canada can offer substantial tax benefits. Corporations are taxed separately from their owners, which can result in lower overall tax rates.
Incorporating can enhance the credibility and professionalism of your business. Customers, suppliers, and investors often view incorporated businesses as more established and reliable compared to sole proprietorships or partnerships. A corporation is also considered a separate legal entity from its owners and provides greater operational flexibility, particularly in terms of structuring the business. Lastly, incorporating in Canada can facilitate business expansion, both domestically and internationally. A corporation can more easily establish branches or subsidiaries in other provinces or countries, providing a structured framework for growth.
Are You Prepared For Incorporation?
Incorporating a business is a significant step that requires careful preparation and planning. Familiarize yourself with the process, which involves:
- Choosing the type of corporation (federal or provincial). Federal incorporation allows you to operate under the same name across all provinces and territories. Provincial incorporation limits your business operations to the province of incorporation.
- Selecting a unique and appropriate name for your corporation that complies with the naming rules and guidelines of the relevant incorporation authority.
- Preparing the articles of incorporation, which outline the basic structure of your corporation.
- Developing a share structure that reflects the ownership and control of your corporation.
- Identify and appoint the initial directors and officers of the corporation. Ensure they meet the residency and eligibility requirements set by the incorporation authority.
- Understand your ongoing legal and tax obligations as a corporation. This includes filing annual returns, maintaining accurate financial records, and adhering to corporate governance practices.
Taking the time to thoroughly plan and prepare will help you navigate the complexities of incorporating. As well as seeking advice from legal, financial, and business professionals to guide you through the incorporation process will be a crucial step.
Are There Time-Sensitive Issues to Consider?
Incorporating sooner rather than later can be wise. It offers numerous advantages, including legal protection, enhanced credibility, tax benefits, better access to capital, and operational continuity. If you have yet to open your business, starting it as an incorporated business can streamline the process.
If you are not concerned about these issues, there may be no reason to rush to incorporate. That said, the end and beginning of the year prove to be the most popular times for businesses to incorporate.
Whether you decide to incorporate or start your business under a different structure, it can be prudent to discuss your situation with an attorney to ensure you make informed decisions about your professional endeavors.
