Should I Incorporate? Incorporating Vs Sole Proprietorship
The question of whether and when should you incorporate is one that is asked by many entrepreneurs – especially when you are starting your business as a part time venture or from home. There are many considerations that influence the question of whether and when should you incorporate or whether it is suitable to operate your business as a sole proprietor.
Here are some of the factors that you should consider when making the decision to incorporate. The corporate and start-up business lawyers at Kahane Law Office can assist you in making a determination for your business that is best suited to your unique circumstances. Call today for guidance: 403-225-8810
When Should You Incorporate: Incorporating Benefits & Advantages
When should you incorporate in Alberta is one of the most common questions our corporate lawyers get. We want people to understand all the benefits of incorporation. While an accountant will approach and give advice as to when should you incorporate based on tax reasons, we will look at your whole picture to review the costs (such as for the added tax returns) in relation to any advantages to incorporating. Here are some of the key factors to decide on.
Costs and Expenses
When should you incorporate may be based on tax considerations. From a tax perspective you can deduct reasonable business expenses incurred in operating and expanding your business whether you are incorporated or running your business as an unincorporated sole proprietorship. There are several costs associated with incorporating – such as the actual cost of incorporating as well as the ongoing filing costs for government annual returns and corporate tax returns. In determining when should you incorporate, you should consider your budget and business cash flow to ensure that you can meet these initial start-up costs when incorporating.
Liability Considerations For When Should You Incorporate
When you are operating as a sole proprietor, all the contracts that you make in your business are “personal contracts”. As a result, you don’t have any limitation on liability and your personal assets (including your home) can be exposed to liability for the contracts that you enter into on behalf of your business. If you are entering into many contracts (including leases, franchise agreements, licensing, or service or supplier contracts) you should strongly consider incorporating your business.
Tax Losses and Tax Deferral
You should obtain tax advice from a qualified tax advisor or chartered accountant on the tax consequences of remaining a sole proprietor or incorporating. As a sole proprietor you may be able to offset losses in your business with income derived from other sources (under certain circumstances). Further being incorporated allows for a tax deferral mechanism that can be very beneficial. As your legal advisor we can help you connect with a qualified tax advisor to help you make these determinations.
Perpetual Existence and Estate Planning
As a sole proprietor, when you die, your business effectively ends, and the assets from the business form part of the residue of your estate (as a personal asset). This may not be what you want to happen. A corporate organization provides for a perpetual existence and allows you to engage in estate planning that may be very beneficial given your current circumstances.
The Scope of Your Operation, Expansion and Bringing on Investors and Financing
A corporate organization provides for a much greater scope in your business, allows you to expand your operations much easier and also bring on employees and investors who can participate in the growth and success of your business. If you have a desire and ambition to grow your business you should strongly consider incorporating. Also, having a corporation allows for a more flexible structure and opens up financing options that might not otherwise be available to you as a sole proprietor.
Getting More Information And Help With Deciding When To Incorporate
The start-up business and entrepreneurial lawyers at Kahane Law Office in Calgary will help you to make the decision of when the best time is to incorporate. When should you incorporate is a situation specific concern and we want you to get the right answers for you! Call us today at 403-225-8810 in Calgary, Alberta), or email us directly here.