01 May Are you thinking about incorporating?
We are frequently approached by clients who are either professionals (i.e. realtors, doctors, dentists, physiotherapists, optometrists, etc.) or who have a sole proprietorship and are thinking about incorporating and require advice.
There are several advantages and disadvantages associated with incorporating that must be considered prior to determining whether incorporating is the appropriate business structure for you. Some of the factors that should be considered include the following:
- If you are a professional, whether your professional association will allow you to incorporate and if so, what restrictions the association may place on the corporation.
- Incorporating creates a separate legal entity – one that has rights and obligations just like an individual person. Among other things, a corporation can acquire assets, be the subject of litigation and enter into contracts. This can be advantageous because if the corporation breaches a contract, it is the corporation that may be liable for damages. However, in actual practice, it is not unusual to see a personal guarantee required by an individual on behalf of the corporation.
- A corporation allows the shareholders of the corporation to have limited liability. The shareholder’s liability is typically limited to the amount that the shareholder has agreed to pay for shares. However, this also may offer less protection than anticipated if personal guarantees have been required and provided.
- The ownership of the corporation can be transferred through the transfer of shares. This not only allows for the efficient transfer of ownership, but it also potentially allows the corporation to raise capital through the sale of shares.
- In our experience, the most common reason for incorporating is the tax benefits that may be achieved through tax deferral, dividends and income splitting. We recommend that you discuss this advantage further with your accountant prior to incorporating.
There are a number of factors that should be weighed in determining whether incorporating is the ideal business structure for you. The foregoing list is not all inclusive so we strongly recommend that you contact your accountant and corporate lawyer before you make the decision to incorporate.
If you would like to learn more about incorporating, feel free to contact Sitka Law Group for a free initial consultation. We are located on Shelbourne Street near the border of Saanich, Oak Bay and Victoria.