To Incorporate or not? That is the question

What does it mean to incorporate?

The term incorporation refers to the act of forming a new corporation. Basically, it is the process of turning a sole proprietorship or general partnership into a business legally recognized by the government.

What are the benefits of incorporating?

At some point in your business life cycle, you may start to weigh the pros and cons of incorporating your business, and have questions like, when and why to incorporate or whether you should do it federally or provincially? Incorporating your business provides tremendous advantages over operating a sole proprietorship to both the owners and the business itself. 

Here are some key benefits of incorporating your business:

Personal asset protection 

No matter what type of business you choose, incorporating designates your business as its own separate legal entity. This allows your business to do many things any person can do, like paying taxes or taking out a small business loan. A business can also file its own lawsuit. This is where the liability protection provided by incorporation becomes really important.

Growth 

Incorporated businesses are often viewed as more credible to potential customers or business partners. Depending on the industry in which your business operates, a formal business structure may be a prerequisite to win valuable contracts, and could be the difference between success or business failure. Corporations can easily transfer ownership through share structures, making business continuity and longevity easier, and opening more opportunities to grow your business. Grow your business with affordable credit with the CIBC bizline® Visa* Card.

Tax Savings 

Depending on your business, forming a corporation can provide major tax advantages over operating a sole proprietorship. In many cases, corporations qualify for additional tax benefits and deductions that aren't available to individual taxpayers. For example, tax benefits and tax deferral options are extended to some corporations, providing savings and options for expenses and business development. You also have more control over how you get paid, whether in dividends or salary, allowing you to maximize tax benefits. 

Protection 

Incorporating limits personal liability of business owners, so your personal assets are protected. Incorporating can also help you remain anonymous if you do not wish to be known as the face of your company. Corporations Canada open in new window. also ensures your business name is protected and cannot be used by another entity across the country. 

Opportunity: 

With the ability to sell shares, a corporation is an attractive option for owners who seek outside investment. Raising capital is straightforward for incorporated businesses. Certain financing options, funds, programs, benefits, and business opportunities are made available exclusively to corporations, so this one step can make a big difference. Many investors maintain investment portfolios with dozens of companies. 

If you have a holding company or own an investments portfolio, learn more about the benefits of incorporating your Holdco.

Should I incorporate federally or provincially? 

Canada has a unique structure, where business owners can choose to incorporate provincially or federally. Provincial incorporation is faster, more affordable, and easier, but limits business activity to within provincial borders. Federal incorporation takes longer to complete and includes more regulations around shareholders and the board of directors: at least 25% must be Canadian residents.