5 Signs It’s Time To Incorporate Your Business

Kelowna BusinessWhen you think about incorporation, it is typically a decision driven by an accountant because taxation often is the reason why you incorporate your business. That said, taxation should not be the sole reason to incorporate.

You need to look at your business and work with your advisors, specifically your lawyer and accountant in this case, to determine the best course of action.

1. Think About The Risk of Your Business

When I say risk, I mean the potential for lawsuits and getting sued. That should be a primary factor when deciding to incorporate your business or not.

If you are running a business that has a high potential of credit or liability risk, you probably want to consider incorporation.

2. Taxation

As we all know, taxation becomes the main reason to incorporate your business. This is because in Canada, in general, the tax you pay if you leave the money in the corporation while running an active business results in you paying substantially less taxes (on the current basis).

It is a deferral of tax because Canada’s taxation system right now is fairly good at integrating corporate and personal tax but RRSPs are deferrals and there are millions of dollars in RRSPs…why not have your own RRSP by having your corporation?

3. Your Customers Prefer It

Other reasons could be that some people or certain clients would rather to deal with a corporation. They feel it is a more reliable business model than if you’re a proprietorship.

Some people and businesses will only deal with a corporation and that can be a valid reason to incorporate your business.

4. Protect Your Name

Incorporating protects your name to some level. If you’re running a proprietorship and call yourself Bob’s Boxes and tomorrow a guy opens up next door and decides to call himself Bob’s Boxes Limited, he can legally use that name and leave you having to potentially change yours.

If you’re incorporated, that name is protected in the area that you’ve registered. For example, in BC if you’re incorporated, nobody else can run with “Bob’s Boxes”.

They can try and you might have to go to court to shut them down but legally they can’t.

That’s important for a lot of businesses…you spend money and effort to build a brand and all of a sudden somebody steals it because you didn’t protect it.

I’ve seen people build their brand as a proprieter and then they go to incorporate and are forced to change their name because they can’t get the name they’ve been operating under….someone else in the province is using it already. That happens quite regularly.

One exception to the protection of your name through incorporation is if your corporate name or a portion of your corporate name has already been trademarked by another company.  Trademarked names will not show up on a regular corporate name search so if you may want to have your lawyer do a separate trademark search before choosing your corporate name.

5. Access to Capital

If you’re incorporated, your business may have an easier time raising money.  As a proprietor you will rely solely on debt from lenders or your own money.  As a corporation, you will have the ability to issue bonds or shares to raise capital.

Our experience is that banks like to lend to corporations as they see this as less risky than other forms of enterprise such as partnerships or proprietorships.

Consult Your Advisors Before You Incorporate Your Business

Before you decide when to incorporate on your own, consult with your advisors first. There are proper frameworks that need to be in place for the transition to go smoothly and it will require some professional help from your accountant and your lawyer.

How did you decide when to incorporate your business? Let me know in the comments below.pyramid showing 5 reasons why you would incorporate your business

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