Is Incorporation Right for You? Here’s What You Need to Know
A corporation is a separate legal entity created through the process of incorporation under provincial or federal law. Once incorporated, the business assumes many of the rights and responsibilities of an individual: it can enter into contracts, own assets, sue or be sued, and pay taxes.
One of the main advantages of incorporation is limited liability, shareholders are generally not personally responsible for the corporation’s debts and obligations. For many entrepreneurs, this protection is a key reason to incorporate.
But incorporation is not always the right choice. Choosing the wrong structure can result in unnecessary costs or missed tax-planning opportunities. That’s where we come in.
Should You Incorporate? Our Lawyers Help You Choose the Best Structure
At Kalfa Law our combined corporate and tax law expertise ensures you choose the business structure that minimizes taxes and maximizes long-term benefits. Our goal is simple: recommend the structure that aligns with your financial, operational, and tax objectives.
If Incorporation Is Right for You
We design your corporate structure to take full advantage of tax-planning opportunities, such as:
- Building an efficient structure using an operating company and a holding company
- Implementing a family trust to hold shares
- Strategically planning for income splitting and dividend sprinkling between spouses, where legally permissible
- Positioning you to benefit from future tax advantages like the Lifetime Capital Gains Exemption (LCGE)
Despite common misconceptions, several income-splitting options remain available post-January 2018.
Learn more about income splitting here.
If Incorporation Is Not Ideal
If incorporation does not offer meaningful tax or operational advantages, we may recommend a partnership or sole proprietorship instead.
Our guidance ensures you avoid unnecessary administrative costs and stay compliant with CRA requirements.
Advantages of Incorporation
Incorporating your business provides significant benefits, including:
- Limited liability for shareholders, directors, and officers
- Lower corporate income tax rates compared to personal tax rates
- Eligibility for major tax planning opportunities, such as the Lifetime Capital Gains Exemption (LCGE)
- Ability to engage in income splitting during ownership (where applicable)
- Additional advantages of using an operating/holding company structure, including:
- Creditor protection
- Tax deferral through intercorporate dividends
- Secured loan-back opportunities
Disadvantages of Incorporation
While the benefits are substantial, incorporation may involve:
- Higher upfront costs (approximately $1,500 initially)
- Ongoing annual expenses (about $500 per year)
- Increased administrative duties, such as:
- Annual corporate resolutions
- Annual corporate returns
- Annual tax filings
Our team will help you understand these obligations and maintain ongoing compliance.
Why Work With Kalfa Law Firm?
Our lawyers combine legal, tax, and business expertise to deliver:
- Tailored business structure recommendations
- Proper incorporation documents and filings
- Strategic tax planning
- Long-term compliance support
We ensure your corporation is set up not just correctly, but advantageously.
Useful Resources
- Canada Revenue Agency – Incorporation & Tax Obligations
- Government of Ontario – Business Registration
- Innovation, Science and Economic Development Canada – Corporate Registries
Frequently Asked Questions (FAQ)
