ACCENTUATE CONSULTING

A GROUP OF FINANCIAL & TAX ACCOUNTANTS

• Why Incorporate

• Pre-Incorporate Checklist

An incorporation is just one method of carrying on business. There are several ways to start a business: sole proprietorship, partnership and corporation. Each structure has its tax and legal advantages and disadvantages . Before you incorporate, you should consider such aspects as personal liability, business name protection, tax advantages and filing costs. 

With a corporation, you are required by law to maintain certain records, keep the accounting books correctly and file documents with the government, including a separate tax return.

Why Incorporate? 

Major Advantages of Incorporation

New Legal Entity

The incorporation process creates a new legal entity which is distinct from the people involved. Among its other powers, a corporation can own property and can sue or be sued in its own name. It also continues to exist as directors and shareholders come and go.

Limited Liability

The people involved in the corporation, such as shareholders and directors, are generally not liable for the obligations or debts of the corporation. Except in unusual circumstances, creditors can sue only the company for debts incurred, not the shareholders.

Lower Tax Rates

Since they are a separate legal entity from their owners, corporations are taxed separately from their owners. This is usually at a lower tax rate than the individual would otherwise be taxed at.

Access to Capital

Financial institutions are generally more comfortable providing capital and loans to an incorporated company.

Disadvantages of Incorporation

Although incorporation has many advantages, there are some disadvantages and responsibilities that need to be considered before making the decision.

Incorporation Costs

To incorporate a company costs considerably more than carrying on business as a sole proprietorship or a partnership. This includes the fees to be paid to the government for the application fee, the NUANS Name Search Report and the professional fees for financial and/or legal services.

More Paperwork

In general, a corporation means more paperwork. For example, you must notify the government of changes in the address of the registered offices or of a change in the directors. Furthermore, the government requires that you keep and update certain corporate records, such as Directors' Register, Shareholder Register, minutes of all meetings and resolutions, etc.

Tax Filing

A corporation is required to file a separate tax return from the owner(s). Similarly, you can no longer report business profits and/or losses directly on your personal tax return.

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Pre-Incorporate Checklist

1. Select the name of the corporation. You must select the name of the corporation. Alternatively, you may opt for a numbered corporation. 

2. Select a head office. You must select a head office for the corporation. 

3. Select shareholders. You must select who will be the shareholders of the corporation. 

4. Number of shares. You must select the number of shares each shareholder will have. 

5. Select directors. You must decide who will be the directors of the corporation. An Ontario corporation requires that a majority of directors be Canadian residents (A federal corporation requires that at least 25% of directors be Canadian residents). 

6. Select officers. You must decide who will be the officers of the corporation. 

7. Fiscal year-end. You must select the fiscal year-end of the corporation. 

8. Select accountants. You may select the auditors or accountants of the corporation. If you do not, you may still incorporate. 

9. Government incorporation fees and the professional fees for financial and/or legal services. 

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