Will Incorporating Benefit My Business?

Is incorporating a smart move for your small business? Let's look at the Pros of Incorporating a business.
Monday, December 20, 2021

What is Incorporating?

Incorporation is a legal process used to build a legal entity or company. A Corporation is a result that legally separates a business entity’s assets and income from its owners and investors.

Incorporating a business means separating the business from the owner and making it an independent legal entity.

Will Incorporating Benefit My Business?

There are many benefits to incorporating your business in Canada, but there are also disadvantages, as we will examine in another article.

Note that the business type is not fixed permanently. You can change the type of your business as it grows. It is not uncommon for small businesses to start as sole proprietorships or partnerships and switch to corporations.

Is incorporating a smart move for your small business? Let's look at the Pros of Incorporating a business.

Advantages of Incorporating

Incorporating or not? That is a question many self-employed entrepreneurs and entrepreneurs are starting to ask themselves.

Those who are still hesitant to consolidate their businesses should know that incorporating comes with many benefits. If you want to grow and employ people, incorporating a business is the most preferred type of structure.

Incorporating offers several advantages over sole proprietorships.

Limited personal liability

The main benefit of being Incorporated is the limited liability. Unlike a sole proprietorship (that a business owner takes all of the company's debts) the owner of Incorporated business debt is limited to the amount invested in the company.

The corporation is a legal entity that differs from its owners. It has the great advantage of limiting the personal obligation of its shareholders including directors to the company's lenders. As the company is a legal entity, it pays taxes, goes into debt, and can sue and be sued.

Shareholders are not liable for the company debt. If your company collapses, the shareholders only lose what they have invested in the company.

Tax Savings and Deferral 

Corporations have a lower tax rate than individuals. Operating your business through a corporation instead of a proprietorship can help to defer and save taxes.

If you do not need to withdraw all the income that your business earns for your personal use, you can defer personal taxation on that income by leaving it in the corporation until it is required. The tax deferral is the period in which the funds are left in the corporation.

Surplus profit can be reinvested back into the business or used for other investments, allowing you to defer personal taxes on withdrawals.

Income Splitting 

If your business is involved, you can pay dividends for your spouse and children. This strategy offers great flexibility in the incorporated business as the benefits paid can vary from year to year, as can be the recipients who receive them. This decision will depend on how much income you want to distribute to lower your tax bracket.

You must first set up your own merger business to include your spouse and children as shareholders. Note, this does not need to be done at the beginning of the organization as you can adjust shareholders throughout the year remember to update your minute's book to reflect changes. You are then allowed to share shares among family members to reduce your tax burden.

Lifetime Capital Gains Exemption (LCGE)

One of the biggest benefits of being incorporated comes when the time comes to sell it. LCGE allows eligible incorporated businesses to sell at a profit of up to $ 892,218 without paying any taxes.

Easier ownership transfers

Suppose you want to transfer your business to your son or daughter as you grow up, but you want to do so only if you suddenly become ill. It may be easier to transfer ownership and finances when a business is a corporation than, you own a sole proprietorship.

A corporation is a separate legal entity, and the shareholders are not the owners of corporation assets directly. Instead, they have shares in the corporation, which owns the assets. This makes transferring ownership interests much easier.

Unlimited life

Another major benefit of incorporated businesses is that they benefit from an unlimited lifetime. When shareholders die, their shares are transferred to the heirs or other shareholders.

The business can always be viable and profitable, no matter what happens to those involved in the business. Here are a few reasons why it matters:

  • Empowers you to create a long-term growth plan within the business
  • The business can always operate without the need to restructure multiple times

Permanent presence becomes a powerful and necessary tool for any business that seeks to establish a solid foundation on which to grow.

Tax benefits

One of the benefits of incorporating your business, and one of the most important factors in gaining power, is the many tax deductions that are found in incorporated businesses. Corporations are taxed separately from their owners. its tax rates are generally lower than personal income tax rates. When you move from being a sole proprietorship to a corporation, there are many deductions you have that are not available to sole-proprietorship owners. 

Easier to raise capital

Being incorporated may make raising money, getting grants and loans easier. When you incorporate, it also means you can open a bank account and start building a credit line, which, for a small business owner, is a must.

Build a better reputation

The reputation of your business is not just based on your value and Google reviews you receive or the good work you do in the community. Incorporation can help ensure your legitimacy and build trust with potential customers. This is a great combination for your business brand.

Protects your brand

Your brand is more than just a logo or a marketing phrase. The way you run your business, the look, and feel of your space, and the type of products you offer. When you incorporate your business, you are not just protecting your reputation. You also protect the entire business image from being used in an unsafe manner or without your consent.

Incorporation allows you to protect: 

  • Name of your business (make sure that good organization does not register before merging)
  • Recognition of your product (visual symbols such as logos, slogans, and colors representing your brand)
  • Your trademark (any words, phrase, symbol, or design that distinguishes your business from others).


Incorporating a company can be one of the best ways to grow your business and help ensure its success. Not only will the shareholders be free from debt, but lower taxes will mean you can focus on transforming your business into the profitable business you want it to be. Banks and any other organization have more confidence in the company than in any other type of organization.

The advantages are not limited to the incorporation but there are also some disadvantages which you have to know about before incorporating. So, stay tuned for our post on the disadvantages of incorporating which you may face when incorporating your business. 


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