To incorporate or not?
A corporation is a separate legal entity with certain rights and obligations, including the ability to acquire assets, obtain a loan, enter into contracts, incur legal liability and carry on a business. Once you incorporate, the corporation’s assets belong to the corporation and not to its shareholders.
There are many advantages and certain disadvantages of incorporating your business.
Some of the advantages are:
To defer taxes
To income split with most of your adult family members who invested a reasonable amount of capital or efforts to the corporation
To utilize the lifetime capital gains exemption on the disposition of qualified small business corporation share
To use a combination of different forms of remuneration, including salary, dividends and bonuses, which, may allow you to maximize tax deferral while still taking advantage of benefits
To limit the liability of a corporation’s shareholders in most cases
Certain disadvantages are:
Increased complexity and cost
Restricted personal use of corporate funds
Potential double taxation on death
When considering incorporating your business, you should ask yourself these questions:
Is your business making more than enough profits to maintain your lifestyle expenses?
Is your business expanding?
Are you considering the succession of your business?
Do you have liability concerns of your business?
If you wish to incorporate an existing unincorporated business with significant tangible and intangible assets, without proper planning, the transfer of assets can potentially trigger capital gains to you. There are many ways to avoid capital gains on the assets to be transferred from you personally to the corporation.
If you have any questions or comments about this blog post, please feel free to contact us.
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