Why incorporate your business?

There are many reasons why one might decide to incorporate a business, which include:

LIMITED LIABILITY
A corporation is a legally separate entity from the owners. Accordingly the shareholders’ personal assets can be protected from claims made by creditors of the business.

TAX ADVANTAGES
Income taxes advantages can often be realized because:

  • Business and professional incomes are generally taxed at lower income tax rates if they are earned by a corporation rather than earned personally.
  • Substantial income taxes can be deferred if the owner-manager does not require all of the earned income for personal needs.
  • Taxes can also be reduced by choosing to draw a calculated mix of salary and dividends.

INCOME SPLITTING
Family members can also own shares of a corporation, which can allow for the payment of dividends (directly or through a family trust) to other adult family members who are in lower tax brackets.

ESTATE PLANNING
Incorporating a business enables the owner-manager to freeze the value of the assets of the company so that the taxes on future increases in the value of the business can be deferred.

SMALL BUSINESS CAPITAL GAINS EXEMPTION
The tax authorities permit the first $750,000 of capital gains on the sale of a Canadian business to be tax-free.

SUCCESSION PLANNING
The use of a corporation can enhance the orderly transition of a business to family members or to acquirers of a business.

CONTINUITY OF EXISTENCE
A corporation is a legally separate entity from the owners. Therefore the death of a shareholder does not bring about the end of a business. The businesses activities can continue uninterrupted, and the new owner will be the party that inherits the companies shares from the deceased individual's estate.

OTHER CONSIDERATIONS
The benefits of an incorporation must be weighed against the additional costs and effort that are required to set-up and administer a corporation.

Notice: While the use of corporations offer excellent planning opportunities for many individuals, this route should not be taken without first consulting with a qualified tax adviser.

Please contact Sylvie Plante if you have any questions or comments.


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