Your business is generating more income than you need for your living expenses. You are building your business to sell one day, or to leave to someone in your Will. You are worried about your personal assets should your business default and become legally liable for debts. You are looking to issue shares in your business instead of incurring a personal debt to be repaid.
If any of these sound like you and your business, it may be time to incorporate.
Tax Savings and Deferral
Corporations can, in some situations, have a lower tax rate than individuals. As such, it may be beneficial in this sense to incorporate your business.
If your business generates more income than you personally need in a given year, you can leave the extra income with the business, resulting in you paying the corporation’s lower tax rate instead of the higher individual tax rate.
Additionally, if you intend to sell your business one day, incorporation can save you a lot of taxes when that day comes, through the Lifetime Capital Gains Exemption.
Incorporating your business can be helpful when planning your estate and the transfer of your assets. If your business is not incorporated, it stops existing when you pass away. However, if your business is incorporated, it will continue to live on after your death.
Limiting Personal Liability
Incorporating your business makes it harder for someone to go after your personal assets should your business default on debts. While there are some situations where a director of an incorporated business can be personally liable for the business’s debt, incorporating your business can limit your personal liability.
Instead of having to incur debt that will need to be repaid to cover business expenses, incorporating your business allows you to sell shares in order to raise capital. Alternatively, you are able to take out loans in the business’ name instead of your own, often at a lower interest rate than a personal loan.
Sound familiar? Then it may be time to incorporate your business. For advice and assistance, contact our Business and Corporate team at [email protected].