Whether it is time to incorporate is a question often pondered by business people. There are two primary reasons to incorporate a business:
1. Your business can realize tax savings through utilizing a corporate structure; and
2. Your business activities are risky and you would like to place this risk on the corporation’s shoulders instead of your own.
Your accountant can help you decide if there are potential tax savings available through use of the corporate business structure. However, tax should not be the only consideration in deciding whether to incorporate. Your business may not yet meet the income threshold that justifies incorporation but you may face significant business risk that could none-the-less justify incorporation. A corporation is essentially a person in the eyes of the law. It can sign contacts instead of you personally signing them and it can be sued without necessarily engaging your personal liability.
Take for example a fledgling business that is contracting with several other businesses such as raw material suppliers, product distributors, and independent contractors. Income and assets of the business are low and a claim under any one of the contracts could far exceed what the business could pay. A lawsuit against this unincorporated company would engage the liability of its owner/operator who could lose their house and savings. If the business was incorporated, it could sign agreements in its own name which would place only its own assets at risk. This leaves the shareholder (owner) free from claim and protects their personal assets.
Incorporation can be an excellent risk management tool if properly structured and used. If you have general questions about incorporation or if you would like more information on effectively using your corporation to manage your business risk, please contact us - http://www.highlanderlaw.ca/contact/
By: Matthew MacGillivray, JD Lawyer & Notary Public
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