As business grows, entrepreneurs need to think more about the legal, accounting, and financial planning side of things.
When is the right time to incorporate?
Most businesses start out small with one or two creative and passionate individuals that have an idea. They begin by mapping out their business plan, deciding on the perfect name and then jump into the work.
As the business grows, entrepreneurs need to think more about the legal, accounting, and financial planning side of things. This includes deciding whether to incorporate or not.
While every business owner is different, the benefits of incorporation are the same. The three most important reasons to incorporate are:
- limiting your personal liability,
- reducing your taxes, and
- financial planning.
Below is a brief overview of the benefits of incorporating a business. For more information or if you want help with deciding if incorporation is right for you, please contact us.
Limiting your personal liability.
When you incorporate a business, you are creating a new legal entity called a corporation. This means that the corporation�s money and assets will be owned by the corporation and not you personally.
The primary benefit of incorporating and having a separate legal entity is that it limits your personal liability. This is because your personal and business assets are completely separate.
For example: if your incorporated business is sued or gets into financial difficulty, your personal assets will be protected* because you incorporated. Alternatively, if you do not incorporate and operate your business as a sole proprietorship or a partnership, you will remain personally responsible for the debts of the business�which can put your personal property (i.e. your home) at risk.
Corporations are taxed at a lower tax rate than personal income tax. By reducing the amount of income tax you pay, there is more money to grow the business. By incorporating, you also have more options to pay yourself, i.e. salary, dividends, or a combination of both potentially reducing the amount of personal income tax you pay.
As your business grows, it is important to seek the advice of a tax professional who can help in this area.
Each stage of your business life has its own focus and associated needs.
Similar to needing a financial plan for your personal life, it is important to utilize planning tools and wealth strategies for your business in order to attain maximum benefits from all your hard work. There are many opportunities to minimize taxes and maximize wealth creation within the corporate structure.
Written by Susan Walker (Stonebrooke Private Wealth Management) – reproduced with permission
* The major exceptions to this are personal guarantees, which are common for bank loans, or directors of a corporation who can be held liable for specific items, including unpaid employee wages and failing to remit source deductions for employee income taxes.
This article is provided for information purposes only. Although the content is believed to be reliable when posted, Podium Prosperity Group cannot guarantee this information is current, accurate or complete and does not assume any liability. The information is not intended to provide any insurance, financial, legal, accounting or taxation advice and should not under any circumstances be relied upon without consultation about your specific situation. The information is subject to modification and updating from time to time without notice.