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Many clients ask us about the most effective way to set up their business. Their primary question is whether they should incorporate. While the details can be very complex, we have tried to simplify it as much as possible.

Advantages and disadvantages of incorporating:

General

Advice on IncorporatingThe biggest advantage of incorporating lies in the limited liability for the shareholders.

Under the law, a corporation is a legal person that is distinct from the shareholders who own it. This means that individual shareholders are not personally liable for the debts and obligations of the corporation. If a corporation fails, the shareholders will lose the amount of equity invested in their shares.

One disadvantage of a corporation is that income is taxed at two levels: first on income for the corporate entity, then at the shareholder level where shareholders are taxed on any dividends they receive.

Specific

  1. The small business tax credit may lower your tax rate for the first $500,000. The breakeven on a professional or self-employment income is around $50,000 net income.
  2. Business tax returns are more complex, so they cost more to prepare. This is factored into the comment above.
  3. If you have major assets built into the business, such as medical equipment, you will require a section 85 roll-over again costing additional overhead.
  4. While dividends are taxed twice, the tax on dividends is still less than the tax on salary dollars.
  5. Finally, monitoring and reporting on corporations are more stringent than for an individual business set up as a proprietorship or partnership.

We have your best interest at hand and work for a lasting relationship with all our clients.