Many people ask themselves the same question when time comes to evaluate the choices available for the creation of their business; Should I choose a natural person type of business, or should I go for incorporation?
THE CHOICE OF INCORPORATION
To find out if this choice is possible for you, here are some important points to know before making a decision.
Heritage protection
The incorporated company is an entity entirely separate from its directors. Which means that in any situation where the company finds itself bankrupt or taken to court for example, creditors will not be able to attack the personal assets of the managers. Therefore the assets of each manager are protected from creditors.
Partners benefit from incorporation for unforeseen events
If you are several partners registered in the same company, the choice of a suitable legal status is often necessary and a shareholders’ agreement is possible.
Indeed, when several partners share responsibility for a company and decision-making power, it is important to protect the interests of everyone, particularly in the event of unforeseen events such as the death of a partner, the sale of their shares or a conflict in decision-making.
It is a document written and signed by all shareholders which has legal value. Its length varies depending on the degree of complexity, the structure of the company and the industry you are in.
THE TAX ADVANTAGES OF INCORPORATION
Another interesting aspect of incorporation comes from the numerous tax advantages it represents.
A really advantageous tax rate
Incorporated businesses can benefit from a significant advantage to which individual businesses and self-employed workers are unfortunately not entitled.
Indeed, incorporating your business offers the possibility of paying less taxes on the income generated during the year. This is because the tax rate charged to incorporated companies is preferential, as opposed to the maximum rate imposed on sole proprietorships.
You should still know that if the annual profit of the company is equivalent to an income of approximately $50 to $70,000, the incorporation costs will certainly be imposing despite a preferential tax rate. In this case, perhaps the choice of a natural person company should be considered.
Choice of remuneration
Another advantage of incorporation comes from the possibility of choosing the form in which you receive your income as a manager. You can choose to receive this remuneration by dividend or salary, which represents a significant interest.
Tax exemptions in the event of a sale
When an owner shareholder of an incorporated company decides to sell all or part of the shares of his company, he can benefit from advantageous tax exemptions on his capital gains.
Indeed, when selling shares of a company incorporated in Canada, it is possible to request a one-time tax credit on personal capital gains. This tax exemption is significant, since it can amount to up to $800,000.
Tax deferrals
Tax deferral means postponing the payment of taxes to a later date. This strategy allows the entrepreneur to leave a good part of the profits made in the company rather than withdrawing a salary or dividends.
This implies that the manager has control over the salary he wishes to declare each year knowing that he can simply leave the surplus in the company which will then be taxed at a lower corporate rate and not at that imposed to individuals who is higher.
INCORPORATION : AN UNCONTESTED FINANCIAL ADVANTAGE
If you have started creating your business, you probably know that it is extremely important to attract investors since they are the ones who can give lasting vitality to the project.
However, investors are more inclined to place their money in incorporated companies, because they are assured that the money will go directly to the proper functioning of the business and not to pay personal debts.
In addition, this solution increases your ability to borrow money. By having its own assets, the company has its own value and the personal debts of the shareholders are not the debts of the company. The company’s debt ratio is therefore optimized.
INCORPORATION AND CCQ
In the business world, there are details to consider at the construction level, as well as when choosing a business form, which can have a direct impact on the execution of the work done by the managers.
Here is an example; the shareholder of a construction company who holds a journeyman painter card who is approached by a contractor in the construction of new houses for the finishing painting of a series of houses in progress. So, if the company is incorporated, there are no restrictions at the CCQ level, but if the company is one in the form of a natural person, unless it hires employees, the shareholder in question could not accept the contract and execute it alone.
LET PROFESSIONALS INCORPORATE YOUR BUSINESS
As you will have noticed, incorporation can be very advantageous for Quebec companies. Both legally and fiscally, this procedure allows many managers to exploit their business to its full potential.
Contact us for more information.
