When it comes to listing the legal mistakes that entrepreneurs make, not incorporating their business frequently tops the list. Managing legal liabilities and tax obligations is easier for young business owners when they have just begun building their enterprise. But as the operations continue to grow, it is crucial for them to incorporate their organisations timely.
In Canada, businesses can be incorporated federally as well as provincially. The legislation responsible for regulating the incorporation of businesses federally is Canada Business Corporations Act. Under this act, businesses have the same legal rights and obligations as a natural person. Hence, an incorporated organisation is treated as an entity removed from its owners and shareholders.
Here’s a closer look at the benefits of incorporating your business:
1) Limits Liability
The key function of incorporating a business is to designate it as a legal entity, distinct from the owner of the organisation. This implies a business is considered to be a separate individual eligible for purchase and sale of property, filing taxes and issuing and being issued legal action.
When incorporated correctly, a business is responsible for its own debts and liabilities. This allows the proprietor to limit her liability in the company and protect her personal assets against litigation or defaulted payments for debts incurred. Consulting a business lawyer while incorporating your organisation makes sure you complete the process correctly and can benefit productively from the legal advantages of incorporation.
2) Makes Raising Capital Easier
It is much easier for incorporated organisations to raise capital as compared to non-incorporated entities. This is because incorporated businesses can issue stocks and easily manage and regulate a board of shareholders. Most financing institutions also consider businesses registered under the Canada Business Corporation Act as low-risk investments and enable borrowing at a lower rate.
3) Lends Stability
One of the basic criteria for filing your articles of incorporation is providing the organisational structure of your company. Other criteria include:
- Registering your corporate name
- Structuring the board of shareholders
- Providing information regarding the board of directors
- Enlisting restrictions on your business activities
- Providing the areas of operation
Your articles of incorporations are public documents that can be accessed by any individual or business. This lends stability to your organisation’s structure and operations and also enhances your business’s credibility.
4) Offers Tax Benefits
One of the key benefits of incorporating your business is that it can help you save on taxes significantly. This is due to the fact that corporate tax rates are usually lower than personal ones. Furthermore in certain cases, corporations are also offered fiscal benefits.
You can also consider issuing dividends or splitting the income among your family members to optimise your tax returns better. Consult a corporate lawyer to help you file your tax returns correctly.
5) Reduces Litigation
Incorporation registers your business as a separate individual. This allows your company to continue its operations even after the key management or ownership shifts or changes. Since correct incorporation provides transparency and constancy to your operations, it helps you avoid unnecessary litigation.
Incorporating your business successfully helps it achieve greater credibility and also helps you protect your personal assets if the business incurs losses. Consult our corporate services to learn about this process better.