The Benefits of Incorporating a New Business in Alberta
Small businesses are becoming more and more popular in Alberta as residents begin running their own operations to procure an income.
While most start as a simple sole proprietorship, many new business expand and grow beyond the capabilities of one individual. In many cases, Albertans choose to incorporate their business.
Incorporating a new business comes with a lot of paperwork, but the long-term benefits provide tax advantages, protection and credibility to business owners.
If you’re ready to take your new business to the next level, read on to see what benefits incorporation has for you.
What is Incorporation?
Incorporation involves transforming a sole proprietorship or general partnership into a company.
Doing so creates a legal business structure separate from the person or people who form it.
Incorporation and corporation are two terms that can be used interchangeably. There’s no legal difference between the two, except that once a company has been designated “corp” or “inc”, it cannot be easily changed.
Legal Considerations When Incorporating a New Business
The day-to-day operations of a company fall under what is known as corporate law.
Incorporation is a legal process of forming a corporation and involves creating the articles of incorporation, adopting bylaws, electing offers and issuing stock to shareholders.
The professionals at Heritage Law can help you navigate the confusion of corporate law and guide you through the process of incorporating your business.
How to Incorporate a New Business in Canada
Incorporation of a new business in Canada is a simply process and can be completed through Canada.ca.
Here are the basic steps to incorporating your business:
- Name Your Business. Be sure to check that the name you choose is available and not already trademarked.
- Apply for a Business Number (BN). This number identifies your company to federal and provincial governments.
- Incorporate Federally or Provincially. You can choose whether or not to incorporate on a federal or provincial level. This determines if you can operate under your business name in all provinces or only the province in which you incorporate.
- Apply for GST/HST. If your business makes more than $30 000 a year in total revenue, you will have to apply for a GST/HST number.
Benefits of Incorporating a New Business
1. Protects Personal Assets
When an individual is involved in a sole proprietorship, they are personally responsible for debts and lawsuits. This means that their assets such as their homes, cars, savings and properties are at risk.
With a corporation, the business is responsible of its own debt so the assets of those involved in the company are protected from creditors and lawsuits.
2. Boosts Business’s Credibility
A business that has been incorporated is typically perceived as more stable by customers, suppliers and business associates. It conveys an image of permanence, credibility and commitment.
The better your company image, the more attractive it is to investors.
3. Tax Advantages
There are tax advantages to having an incorporated business compared to a sole proprietorship.
Business taxes receive a lower tax rate than a personal income. A corporation is a separate tax entity with its own income tax rates.
An incorporated business can claim a small business deduction, which is a reduction of the tax rate on the first $500 000 annual taxable income.
Incorporated businesses can also take advantage of tax deferrals. The business income is retained within the corporation plus additional personal tax that will be payable when dividends are paid is deferred.
Additionally, corporations can deduct such things as health insurance, businesses losses, investments and travel expenses from their taxes.
4. Creates an Enduring Business Structure
Corporations are an enduring business structure and can continue even if the individuals pass away, leave or transfer ownership and management to other individuals.
Incorporating a new business protects the business name, brand recognition and any trademarks associated with it.
Having an enduring business structure also means that you can create long-term plans for growth.
5. Easy to Transfer and Raise Funds
Corporation ownership is easily transferable because no personal assets are attached to the company. This is beneficial if you wish to transfer the company to a family member or new owner.
When it comes to capital, it can be raised through the sale of stock. Also, more banks prefer to lend to incorporated businesses as opposed to sole proprietorships. An incorporated business can more easily open a business bank account and start building credit within the company.
6. Easy to Sell the Business
If you are looking to eventually sell your business, an incorporated business is more attractive to buyers. From an investor’s point-of-view, it is easier to track and manage a corporation.
As well, because the business’s brand and image are protected by being incorporated, buyers will be more willing to purchase an already established and credible business instead of one that is not protected.
7. Established Retirement Accounts
It is less expensive to establish a tax-advantaged retirement account when a business is incorporated. This is due to the fact that being a corporation shows that the business is qualified to offer retirement plans to employees.
It allows small businesses to set up retirement accounts designed specifically for small businesses. The accompanying tax benefits allows you to maximize the money you can save.
Our Lawyers Are Ready to Help You
Are you thinking about incorporating your new Alberta business? Let our expert lawyers at Heritage Law help you through the process.
Contact us to make an appointment or for more information.