When and Why to Incorporate Your Small Business


There are pros and cons to incorporating a small business, much of which depend on your individual situation. But, in my experience, far too many business owners fail to ask their accountant about whether or not to incorporate. When you incorporate you’re essentially creating a separate entity, separating yourself from the business you worked to build. As your business grows, a corporate structure can give you more flexibility and the opportunity to do better tax and succession planning than having a proprietary structure.

But when and why should you think about incorporating your business?

You’re Planning for Continuous Growth

What are your goals for your business? Does your business plan include goals for long-term growth (both financially and in terms of your workforce)? Are you hoping to turn your business into something that can be passed down by generations of your family? These are all goals that speak to eventually having a corporate structure. However, if your business hinges on your personal skillset, or you plan on shutting the business down once you retire, incorporating may not serve you in the long-term.

Your Business Carries a Lot of Risk

If your business carries a heightened opportunity to incur more risk, whether you work with children, food, or within the healthcare industry, then a corporate structure will give you a better umbrella of protection because you are indemnified from the liabilities of the corporation. By separating yourself from the business, you protect your personal assets in the event of a lawsuit. If you are a proprietor your house, cars, and investments are all on the table!

You Want to Take Advantage of Tax Credits

One big benefit that comes with incorporating is being able to take advantage of the lifetime capital gains exemption, which is available to qualified small business corporations. Each Canadian is entitled to a capital gains exemption of up to $813,600 on certain small business shares, as well as on qualified farm and fishing properties, which could save you a huge amount of tax over your lifetime—as much as $200,000 by some estimates.

Be Proactive, Not Reactive

Keep in mind that corporations generally require a little more accounting work and different types of tax returns, which are usually more expensive. If your company is only a year or two old and your sales are still small, don’t incur the higher maintenance costs of a corporation right off the bat, but have the conversation about the possibility of incorporating early on. A good accountant will tell you when you’re ready.

If you are a small business owner with questions about whether or not to incorporate, don’t hesitate to get in touch. We’re here to help you plan accordingly for the long-term success of your business. Call us today: 289-466-5210.