Whether you are big or small, established or brand new, there are many reasons to operate your business as a corporation. Overall, incorporation provides strategies for risk management and financial planning. Given the range of benefits, nearly all businesses choose to incorporate at some point. Choosing the right time for your business will depend upon when you can take advantage of some of the benefits listed below.

Limited Liability

Unless you have incorporated, there is no legal separation between you and your business. Your business debts are your personal debts. So if your business fails to pay its debts, you are putting all your personal property at risk: your home, your car, and your savings.

Incorporation makes your business a distinct person for legal purposes. After you have incorporated, your business debts become separate from your personal assets. So if those debts do not get paid, it’s only the business’s property that is at risk, not your hard-earned personal assets.

Fundraising and Investment

Many small businesses and startups raise money by finding investors. But investors can’t invest in a business that isn’t incorporated. In exchange for providing money to a business, investors will expect to receive shares and potentially become directors of the business. Incorporation is necessary to build a share structure and a board of directors.

Perpetual Existence & Retirement Planning

As a small business owner, you likely don’t have the luxury of a pension or generous retirement savings plan. Your future will be funded by your business. Incorporating gives you the tools to plan your future. When it comes time to sell the business (either because you’re retiring or not), the purchaser will be looking to buy your shares and become the owner.

Tax Planning

When you incorporate, you gain several tools which will help you reduce your taxes as a small business owner. In Canada, the tax rate on corporations is lower than the tax rate for individuals. Whenever you can leave some money in the corporation, you can reduce the taxes you pay. You also have the flexibility of choosing how you get paid. You can pay yourself in salary, dividends, or a combination of both depending on what will result in the lowest tax burden.

If your corporation is owned by Canadian citizens or residents, you will gain further tax benefits available to Canadian Controlled Private Corporations (CCPCs) including the Small Business Deduction.

For example, in Ontario, an incorporated business pays a tax rate of 13.5% on the first $500,000 of income each year, and 26.5% for all income beyond that. As a business owner, if you are able to leave money in the company, and not take it all out for personal expenses, you can increase the value of your company’s assets. This means that the money you leave in your company could be used to invest back into the business: for example, to spend on marketing, buy new equipment, purchase additional inventory or hire new staff.