WHY INCORPORATE YOUR CALGARY BUSINESS
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
Launching a new business venture demands making smart decisions to optimize the profitability realizable from your commercial venture, while limiting its legal exposure, such that you need to properly explore the advantages associated with incorporating your business early on.
A. Limited Personal Liability:
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This is often the most compelling reason to incorporate. A corporation is a separate legal entity from its owners (shareholders). This means that, generally, your personal assets (like your home, savings, and other investments) are protected from the business's debts, liabilities, and legal actions. If the corporation faces financial difficulties or a lawsuit, creditors can typically only go after the corporation's assets, not yours. (Note: Personal guarantees on loans or fraudulent activities can be exceptions to this limited liability).
B. Tax Advantages and Deferral:
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Lower Corporate Tax Rates: Canadian corporations, especially Canadian Controlled Private Corporations (CCPCs), often benefit from significantly lower corporate tax rates on active business income compared to personal income tax rates. This can result in substantial tax savings.
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Small Business Deduction (SBD): Eligible CCPCs can access the SBD, which further reduces the corporate tax rate on the first $500,000 of active business income (the exact limit can vary).
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Tax Deferral: You can choose to leave profits within the corporation, where they are taxed at the lower corporate rate. You only pay personal income tax on the money you withdraw from the corporation as salary or dividends. This allows you to defer personal taxes, giving you more capital to reinvest in the business for growth.
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Income Splitting: Under certain conditions, you may be able to split income with family members (e.g., spouse, adult children) by employing them or paying them dividends, potentially reducing the overall tax burden for the family unit.
C. Enhanced Credibility and Professionalism:
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Using "Inc.", "Corp." or "Ltd." in your business name often signals to clients, suppliers, and financial institutions that your business is more established, professional, and serious.
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Some larger companies or government agencies may only work with incorporated businesses.
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It can make it easier to attract investors and secure financing.
D. Perpetual Existence and Succession Planning:
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Unlike a sole proprietorship or partnership, which typically dissolves upon the death or departure of the owner(s), a corporation has a perpetual existence. This means the business can continue to operate seamlessly even with changes in ownership, management, or the death of a founder.
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This facilitates easier succession planning, allowing for the smooth transfer of ownership through the sale or reorganization of shares.
E. Easier Access to Capital:
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Financial institutions are often more comfortable lending to incorporated businesses, and you may be able to secure loans at more favorable rates.
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A corporate structure allows for the issuance of shares, which is crucial for raising capital from investors (like angel investors or venture capitalists).
F. Lifetime Capital Gains Exemption (LCGE):
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For owners of qualifying Canadian Controlled Private Corporations, there's a significant lifetime capital gains exemption available when selling shares of their small business. This can result in a substantial portion (or even all, up to the current limit) of the capital gain from the sale being tax-free.
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, with respect to our law firm's incorporation-related legal work.
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