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Many clients have always asked us, would it benefit them if they incorporate their business? There are pros and cons to incorporating a business and it needs a careful consideration of your personal  and financial situation of your business.

Separate legal entity
A corporation is a legal entity that has its own legal personality that is separate from its owners (shareholders) and the individuals who manage its affairs (directors or officers). It is created by filing the necessary legal documents with relevant government authorities.

Incorporating your business could result with the following benefits:

  • Limited liability of shareholders up to the extent of funds invested to the corporation.
  • Lower income tax rates, tax deferrals, and among others, the ability to use the capital gains deduction on the disposition of qualifying small business shares.
  • Corporation continues on even after the death of its shareholders, directors and officers. 
  • It is easier to raise capital through sale of shares.

While the disadvantages to carrying an incorporated business could mean:

  • Additional costs and fees for preparing detailed records, filing the financial statements, tax returns and annual minutes.
  • Inability to use business losses to offset personal income of owner. 
  • Depending on owner's personal income, shareholder could end up paying additional taxes for dividends declared by the corporation.

It's generally advisable to defer incorporation until the business is profitable, unless there are huge business liabilities which could potentially deplete personal assets. There are numerous tax planning opportunities available in incorporating a business and at Estrada & Tan, we'll be happy to assist you with your plans.