Many Canadian business owners often ponder over this question. Understanding the appropriate time to upgrade and the rationale behind incorporating your business can assist you in making informed decisions as your business expands. Below are some of the benefits of registering a business in Canada
Benefits of Registering a Business in Canada
Simplified approach to obtaining financial resources
Corporations have the advantage of accessing funds at reduced interest rates. Additionally, they can generate capital by offering shares or bonds to investors, who are referred to as shareholders.
Reduced tax rates
Corporations are subject to separate taxation from their owners, with corporate tax rates typically being lower than personal income tax rates.
Restricting Your Legal Responsibility
Incorporation provides enhanced protection for both yourself and all other individuals affiliated with the company, including partners and employees. It is a fact that unforeseen financial difficulties can arise despite careful planning.
Corporations are legally separate entities, whereas small businesses in Canada are inherently linked to their owner(s). If you hold the position of founder, shareholder, and/or executive in a corporation, you are not held personally responsible for the company’s debts.
Individual legal entity
Corporations possess identical rights to those of an actual individual, encompassing the ability to own property, acquire loans, and engage in contractual agreements.
Building a Strong Professional Reputation
Having a corporate history carries significant weight, as it demonstrates your understanding of your company’s importance and your commitment to its success, regardless of whether the income remains unchanged. This is particularly valuable when seeking employment or embarking on a new business venture.
Perpetual existence
Corporations continue to exist until they are dissolved, merged, or voluntarily surrender their charter (such as in the case of bankruptcy). In contrast, other business structures cease to exist upon the death of the owner.
Immediate credibility
Incorporating your business can instantly enhance the credibility of your business. It sends a clear message to potential investors, lenders, suppliers, customers, and employees that you are committed to long-term success.
However, it is important to note that incorporating a business comes with additional expenses and efforts. A corporation is required to maintain separate accounting records, distinct from those of its owners. Moreover, corporations must fulfill annual registration fees and submit separate financial statements and tax returns.
Types of Businesses in Canada
In Canada, there exist three primary forms of business entities, each presenting distinct advantages and disadvantages. Familiarizing yourself with these variances will provide valuable insights into commencing your business journey and determining the opportune moments for upgrading or modifying your legal framework. The three principal business structures encompass sole proprietorship/partnership, corporation, and cooperative.
Sole Proprietorship
This is the typical “small business” that the majority of Canadian entrepreneurs begin with. They are efficient in their establishment and adaptable but are subject to the owner’s tax rate. This form of business can be owned by a single individual (sole proprietorship) or multiple individuals (partnership). Registration can be conveniently done online at any given time.
Pros
- Setting up and maintaining this business is both simple and affordable.
- The establishment and upkeep of this business are hassle-free and cost-effective.
- This business can be easily and inexpensively established and managed.
- The owner has full autonomy over the business, with complete control.
Cons
- The owner bears complete responsibility for the debts
- Acquiring capital becomes challenging due to this circumstance.
- Limited access to benefits like health insurance.
Partnership
A partnership refers to an unincorporated business that is owned and operated by two or more individuals. There are two distinct types of partnerships: general partnership and limited partnership.
Pros
- A sole proprietorship lacks the abundant resources and expertise found in other business structures.
- Partnerships offer the advantage of sharing both profits and losses.
- The process of setting up a partnership is relatively straightforward and uncomplicated.
Cons
- General partners bear full responsibility for the debts and obligations of the business, without any limitations.
- Disagreements among partners can arise, resulting in conflicts over decision-making.
- The distribution of profits is mandatory and must be shared among all partners.
Corporation
This arrangement imposes restrictions on personal accountability and offers reduced tax rates and various other benefits. Although establishing and managing a corporation is more costly and time-consuming, businesses with substantial income and employees typically gain advantages from incorporating (more details on this will be provided shortly). It is a common misconception that a corporation must be a medium-sized or large company. In reality, even as a sole individual, you can opt to become a one-person corporation. While this entails additional responsibilities, you can still access all the same benefits, regardless of being a solo performer.
Pros
- Business owners enjoy restricted liability for the debts and responsibilities of their business.
- It offers enhanced flexibility and potential for growth.
- Easier to raise capital than other structures.
Cons
- Setting up and maintaining it is a more intricate and costly process.
- It is subjected to additional regulations and reporting obligations.
- The profits undergo double taxation, being taxed both at the corporate level and again at the individual level for shareholders.
Co-operatives
Co-operatives have the flexibility to operate as either for-profit or not-for-profit entities. If you are considering establishing a corporation that involves multiple partners or aims to engage in charitable activities while enjoying special tax benefits, opting for a cooperative structure might be the most suitable decision.
Pros
- Members play an active role in the decision-making process of the business.
- The distribution of profits among members fosters a sense of equality.
- Cooperatives prioritize social and environmental responsibility in their operations.
Cons
- The process of making decisions can often be time-consuming and burdensome.
- Conflicting interests among members can impede the decision-making process.
- Acquiring capital can pose greater challenges compared to other organizational structures.
Register your business in Canada with OnDemand International
It is commonly believed that approaching the government directly is the most cost-effective and optimal method to establish your business as a corporation. However, in actuality, relying solely on the government option will not suffice to complete the incorporation process. Probably, you will still require the services of a lawyer or professional to meticulously draft crucial legal documents that outline the framework of your corporation.
OnDemand International (Odint) provides a wide range of services to support entrepreneurs, both domestic and foreign, in registering their businesses in Canada. Below is a detailed overview of how they can aid you:
- Professional advice
- Business Name Search and Registration
- Documents Preparation
- Accounting and bookkeeping services
- Business Number Registration
If you have a desire to register your business in Canada, I strongly advise reaching out to OnDemand International (ODINT) for a discussion regarding their services and how they can assist you.