Incorporating
Is my liability limited once I incorporate?
Yes and no. As a shareholder of a company, the only loss you could incur is the loss of the money you paid for your shares. However, you will most likely be the director of the company, and will be liable personally, as the Director, for all government funds collected, such as HST and source deductions. You will also be responsible for up to six months wages for employees. There is also the potential liability for environmental costs. Finally, as a new company, lenders (banks), suppliers, and landlords might ask for your personal guarantee.
What are the tax advantages of incorporating?
A corporation is a person who files its own tax return. In Ontario, a Canadian controlled private corporation carrying on active business is taxed a low rate of 12% for the first $500,000.00 of profit. As an individual, you are taxed on a progressive rate where, currently, at $220,000.00 you are paying approximately 53.53% in taxes. A simple question to ask yourself is, at the end of the year, do you have funds left over to invest (that are not necessary for day to day living)? If the answer is yes and you have surplus funds of at least $25,000.00, there may be significant tax savings if you incorporate your business depending on your personal tax rate. Further, your spouse could own shares and this may allow for some income splitting depending on certain factors.
How long does a company exist for?
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Technically, it could last indefinitely as long as the proper filings are maintained. The Hudson Bay Company was granted its charter in 1670, some two hundred years before confederation, and was one of Canada’s leading retailers until its closure in 2025. Although the original shareholders and directors were long gone, the company was still going strong centuries later. Incorporating often gives customers and suppliers a sense of permanence. This permanence not only gives a sense of stabilit,y but is extremely useful when dealing with subsequent generations of family members in a family business.
To discuss Incorporating, Contact Us today.
