Incorporation

Incorporation

A corporation is a legal entity that is separate and distinct from its owners, known as shareholders. It is created through the process of incorporation under the laws of a particular jurisdiction. Corporations have many of the same rights and responsibilities as individuals, including the ability to enter into contracts, own assets, sue or be sued, and pay taxes. One of the key features of a corporation is limited liability, which means that the shareholders are not personally liable for the debts and obligations of the corporation. This makes corporations an attractive choice for entrepreneurs and business owners looking to protect their personal assets while conducting business activities.

Is Incorporation Right for You?

Not always. With our combined tax and corporate experience, we recommend the most suitable business structure that minimizes your tax to the CRA.

If incorporation is right for you, our business incorporation lawyers will structure your corporation to optimize corporate tax planning opportunities. This may include several corporations of operating and holding companies. Or it may include a family trust holding the shares of the operating company. Importantly however, we set up your corporations to take advantage of income splitting and dividend sprinkling between spouses to the extent permissible. Despite what you’ve heard, these tax planning tools are still available post January 2018. For more information on income splitting, read our article here.

If we determine incorporation is not necessary nor advantageous for tax reasons, we will establish a partnership or sole proprietorship as your business structure.

Advantages of Corporation

• Limited liability of the corporation’s shareholders, directors and officers
• Lower income tax rates on revenue earned inside a corporation
• Opportunities for tax benefits such as the Lifetime Capital Gains Exemption, or income splitting during ownership
• An operating company/holding company structure can introduce further benefits such as creditor proofing and income tax deferral using the intercorporate dividend mechanism + secured loanback

Disadvantages of a Corporation

• Higher costs to establish the corporation (around $1500 initially and then $500/year)
• Increased administrative burden in maintaining a corporation year over year (annual resolutions, annual corporate returns and annual tax returns)