INCORPORATE YOUR CALGARY SOLE PROPRIETORSHIP
Business incorporation lawyer assisting Calgary entrepreneurs and start-ups incorporate the appropriate corporate entity to advance their commercial ventures.
Contact Neufeld Legal PC at 403-400-4092 or Chris@NeufeldLegal.com
Although you may have commenced your Calgary-based business as sole proprietorship, as it has grown and become increasingly more profitable, it become to seriously consider the commercial advantages emanating from incorporating your sole proprietorship and undertaking the optimal process to transform your sole proprietorship into a corporation, including appropriate legal and tax structuring.
The strategic determination to proceed from a Calgary sole proprietorship to a corporation, as the business has grown and become increasingly profitable, is generally supported by these primary reasons for incorporating:
A. Limited Personal Liability
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This is often the most significant driver for incorporation. As a sole proprietor, there's no legal distinction between you and your business. This means your personal assets (like your home, car, and savings) are at risk if your business faces debts, lawsuits, or other financial liabilities. A corporation, on the other hand, is a separate legal entity. Your personal assets are generally protected from business debts, meaning creditors can typically only pursue the corporation's assets.
B. Tax Advantages and Planning
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Lower Corporate Tax Rates: Corporations in Canada often benefit from lower tax rates on active business income compared to personal income tax rates. The Small Business Deduction (SBD) further reduces the corporate tax rate on the first $500,000 of active business income.
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Income Tax Deferral: You can defer personal income tax by leaving profits within the corporation rather than immediately drawing them out. This allows you to reinvest earnings back into the business or other investments, growing your capital without immediate personal tax implications. You only pay personal taxes when you withdraw funds as salary or dividends.
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Income Splitting: With a corporate structure, there can be opportunities to split income with family members through dividends, which can lower the overall household tax burden if family members are in lower tax brackets.
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Lifetime Capital Gains Exemption (LCGE): If you eventually sell shares of a qualifying small business corporation, a significant portion of the capital gains (currently up to $1.25 million, adjusted annually) can be tax-exempt. This is a major advantage for long-term business owners.
C. Enhanced Credibility and Professionalism
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Perception: Using "Corp.", "Inc." or "Ltd." in your business name often signals to clients, suppliers, and financial institutions that your company is more established, professional, and trustworthy than a sole proprietorship. This can help attract larger contracts or better business opportunities.
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Attracting Talent: A corporation may be perceived as a more stable and attractive employer, making it easier to recruit and retain employees.
D. Easier Access to Capital and Financing
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Investment Opportunities: Corporations can issue shares to investors, making it much easier to raise capital from venture capitalists, angel investors, or other equity partners. Sole proprietorships are generally limited to personal loans.
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Loans and Credit: Banks and other lenders may view incorporated businesses as less risky and more stable, potentially making it easier to secure loans or lines of credit with more favorable terms.
E. Perpetual Existence and Succession Planning
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Continuity: Unlike a sole proprietorship, which dissolves upon the death or incapacitation of the owner, a corporation has perpetual existence. It can continue to operate even if ownership changes or if the original owner steps away.
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Easier Transfer of Ownership: Shares in a corporation can be easily transferred or sold, simplifying succession planning, estate planning, and the process of selling the business.
F. Name Protection
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Incorporating your business provides name protection within that jurisdiction, preventing others from registering a business with the same or a similar name.
So if you are looking to incorporate a new corporation or deal with the corporate legalities impacting your company, whether in Calgary or elsewhere in Alberta, we welcome you to contact our law firm at 403-400-4092 or via email at Chris@NeufeldLegal.com.
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