CorporationCanada

Incorporation provides some liability protection for the corporation’s debts and offers some measure of protection for a company’s name. Company officers and shareholders may come and go, but the corporation exists until it is wound down.

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Corporations must keep meticulous records and report their financial situations to competent authorities yearly. Therefore, their financial statements must be audited annually by chartered accountants.

When starting a company, it’s essential to select the business structure that best supports your goals. Most of the time, business structures are chosen to comply with tax law, which treats each type of structure differently.

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“However, it’s not so time-consuming and complicated,” assures Yasmine Chaouni, a manager with Corporations Canada. “If the company structure is not too complex, you can do it in less than 20 minutes,” she says.

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The issue of cost, often perceived as high, is also a misconception and should not be an obstacle to incorporating. “Obviously, it depends on whether you want or need legal and accounting advice, but you can initially incorporate a business for as little as $200 under federal jurisdiction, with subsequent fees for extra-provincial registration, which vary depending on the provinces where the business intends to carry on business” adds Chaouni.

“Starting a business takes a lot of time and energy. There’s a lot of information to sort through, and entrepreneurs often put off questions about incorporating until later. Many don’t yet understand the benefits of incorporating,” says Stefanie Ricchio, a chartered professional accountant (CPA) and founder of the consulting firm The Modern Accountant.

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Laura Didyk, BDC’s Vice President, Client Diversity echoes these comments. “Incorporating is often seen as an administrative burden for self-employed people starting a business, especially women. It’s common to think that the quickest and easiest way is to use your own name.”

As with a sole proprietorship, there is no legal structure for a partnership. However, this partnership is usually entered into with some type of contractual agreement that governs, in percentage terms, the sharing of revenues, expenses and tasks.

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A sole proprietorship is informal and easily created, which is why it is the most common structure chosen by new businesses.

However, sole proprietorships have a downside in that the proprietor is personally liable for all functions and debts of the business.

In this structure, the business and the operator are one and the same in the eyes of legal and tax authorities. Tax law treats a sole proprietorship as an income source for the proprietor and therefore requires that the business’s financial details be listed in a separate section of the personal income tax form.

This presents some tax management options for the proprietor. If the business generates a loss, that loss can be applied to reduce income gained from other sources. That is why most part-time businesses are sole proprietorships.

Entrepreneurs who want to incorporate can do so directly online on Corporations Canada website. Here are the four steps to incorporate in Canada.

Incorporation is most often done under a charter in the operator’s home province, but some companies that operate in many provinces or internationally, or that require enhanced credibility, incorporate federally, which is more costly and complicated.

Many entrepreneurs are not interested in the idea of incorporating, at least not in the early stages of building a business.

Incorporation creates formal ownership shares, which produces a taxation and legal distance between the company and the shareholders. This in turn has tax advantages for the owners, who are usually paid salaries as employees of the corporation.