Should I Incorporate?

We’re often asked by owners of small businesses whether or not they should incorporate. While each situation is different, here are a few things to consider. You can also discuss your particular situation with your accountant.

Reasons to Incorporate:

  • You can afford to leave excess cash in the business and want to take advantage of lower tax rates.

  • For legal liability reasons.

  • As a separate legal entity, a corporation gives you more options when selling/transitioning the business. You may also be able to use the capital gains exemption.

  • Being incorporated can be viewed as more credible and professional to potential customers/clients/lenders.

Reasons Not to Incorporate:

  • You need all excess cash personally and would be pulling it out or using it for personal expenses.

  • If you have made personal guarantees on business debt (e.g. to a bank), your liability may not be as limited as expected by incorporating. 

  • There will be extra costs, including incorporation costs, annual fees, a separate corporate tax return to file each year, and applicable legal and professional fees.

  • As a sole proprietor, you can still have a business number, GST account, and a payroll account to pay employees. You are also eligible for the same deductions as a corporation.