Why Should your business be incorporated?
Legal Separation: Incorporating your business creates a new distinct legal entity. As such, a corporation can own property, can sue or be sued, and enjoys perpetual existence. Corporations even enjoy some of the rights entrenched in the Canadian Constitution.
Limited Liability: Corporate directors and shareholders are generally not liable for the debts or obligations of a corporation. Accordingly, creditors can only sue the corporation (rather than the directors or shareholders) for debts incurred as long as the shareholders and directors have acted honestly, in good faith, and in the best interest of the corporation, and have exercised a minimum standard of care in their office.
Lower Taxes: Unlike partnerships, corporations are taxed separately from (and usually at a lower rate than) their directors or shareholders. An accountant should be consulted in order to maximize corporate tax benefits.
Ability to Raise Capital: Unlike partnerships or sole proprietorships, corporations can raise capital through the issuance of shares. In addition, most financial institutions are more comfortable providing loans to corporations.
What happens if my corporation is not properly formed?
IF A CORPORATION IS NOT PROPERLY FORMED or does not follow all legislative requirements, a number of serious consequences may occur.
AT BEST: You may have to pay costly filing fees in order to put your corporation into good legal standing.
AT WORST: Your corporation may be automatically dissolved, leaving you personally and legally responsiblefor any liabilities incurred.