If you’re planning to start a business or you’re self-employed (a.k.a. a sole proprietor) who is considering incorporating or taking your business up a notch, you’ll want to consider your options and plan accordingly. It is important that you seek your own independent legal advice but we can provide you with some preliminary information to help you decide if you should incorporate your business.
Let’s take it from the top!
What is a corporation?
A corporation is a business that is legally recognized as an entirely separate entity from the business owner(s). Corporations have a board of directors that make decisions to hire, fire, loan, borrow, own assets and pay taxes.
Read more about the difference between a sole proprietorship vs a corporation
Pros of a corporation
- Separating personal assets from your business: When your business is incorporated, your personal assets are protected and if your corporation fails (fingers crossed it won’t) your personal assets aren’t on the line.
- Flexibility for growth: Corporations can also have multiple owners, apply for government grants, save money on taxes, raise capital, and own contracts under its unique name.
- Lower tax rate: Generally speaking, corporations are taxed at a lower rate compared to a sole proprietorship, depending on the business income level. We highly recommend you speak to a tax professional for your individual case.
Cons of a corporation
- More work: Incorporating your business does come with some additional paperwork. You’ll have to file two tax returns each year, which means if you don’t have an accountant, you may want to invest in one.
- You’re not off the hook: Although your corporation has limited liability, the owner/s will still be personally responsible if payment obligations aren’t met (i.e if you aren’t paying your employees you could get sued by them).
- No personal tax credit: Corporations don’t receive tax credit as you would when filing personal income – you pay tax on every single dollar of the profit (but bear in mind that the corporation’s income tax rate may be lower than for your personal income, so please speak to a tax professional to crunch some numbers for your case).
- Double taxation:If your corporation pays its shareholders dividends (vs. salary), you’ll incur something called “double taxation.” Dividends are the distribution of profits to shareholders (who own the corporation). In an overly simplified term, this is how ‘double taxation’ works: first the corporation pays its income taxes on the profits, then afterwards, dividends are paid to the corporation’s shareholders, and as a shareholder, you will pay personal income taxes on dividends received from your company. The income earned by the company is in effect taxed twice. The actual calculation is much more complex, and we recommend you speak to a tax professional regarding your specific case.
Can a single person incorporate?
You don’t often think of corporations as a one-person show, but guess what? It’s totally possible. Your business can be comprised of only you—provided you get along well with yourself. You can be the CEO, Treasurer, Secretary, and the only shareholder of the company. But, just because you’re riding solo, doesn’t mean you’re exempt from following the rules. You still need to properly prepare minutes (corporate record keeping), make important decisions, and file the necessary legal documents for your incorporation. Be wary, the double taxation we wrote about earlier could cause trouble for single owners. You certainly don’t want to overlook anything when it comes to running a corporation, or it could cost you. If this all sounds daunting, you might want to consider sole proprietorship instead.
Did You Know: Ownr’s fee includes a digital Minute Book to keep your corporate records organized. It’s not included in the government incorporation service. If you use a professional, be sure to ask if this is included in their fees.
Cost of incorporation in Canada
The cost of incorporation depends on your jurisdiction and whether you are incorporating federally or provincially. Provincial incorporation can cost anywhere from $200 – $350 while incorporating federally costs $200 plus any extra provincial filing fee charged by the province (you are required to file an extra provincial registration in the provinces you have business activities in addition to the federal incorporation), not including name search fees. There may also be additional fees to file annual reports, get a corporate seal, prepare and file corporate taxes, and renew your incorporation. Read more about incorporation costs.
Did You Know: Ownr’s fee includes up to 30 free name searches, all mandatory incorporation documents, and a digital Minute Book.
How do I incorporate as a single-person?
To start, you must first decide if you’ll incorporate federally or provincially – federal incorporation gives your business more name protection and the ability to conduct business throughout the country, whereas provincial incorporation lets you operate only in one province. Then, you need to choose a unique and distinctive name and conduct an official name search in the government’s database to make sure it’s not yet taken by someone else.
Once you have decided on the type of incorporation, the actually registration process varies depending on the jurisdiction, and you may need to go to a few different places to fill out required paperwork if you decide to incorporate yourself.
Mandatory documents required for an incorporation:
- NUANs report (the official name search report to choose a unique business name)
- The Articles of Incorporation
- Minute Book (a.k.a. your corporate records)
And you can read detailed information about how to incorporate your business in Ontario here.
Because doing research and filling out paperwork can be very time consuming and confusing, many people turn to professionals, such as lawyers, for help,. The cost of a lawyer for incorporation usually is around $1,500 or more.
That’s why Ownr was created – to solve the problem of time consuming incorporation process at the fraction of the cost of a lawyer. With Ownr, you can incorporate online quickly, easily and receive all mandatory documents digitally to your inbox.
And boom! You’re in business.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.