The advantages of incorporating your business

There are several advantages to operating your business through a corporation. In this article, I will walk you through the basic features of business corporations and the benefits of incorporation.

First, unlike sole proprietorships that are required by law to be registered, corporations must be incorporated. A business becomes a corporation the moment the Registraire des entreprises du Québec issues a certificate of constitution.

A corporation acts through shareholders meetings and its board of directors. The officers are mandataries of the corporation.

One of the main advantages of incorporation is that the patrimony of the corporation remains separate from that of its owners, which means that the business earns its own income and incurs its own debts. Consequently, shareholders are not personally liable to the corporation’s creditors.

Corporations can also issue share capital. What’s more, shares give shareholders the right to vote, receive dividends, and receive a percentage of the corporation’s remaining assets in the event of dissolution. Share capital is often divided into common shares and preferred shares. The holders of common shares have the three basic rights mentioned above, whereas preferred shares are often subject to restrictions, depending on the current or future needs of the business and its shareholders.

A corporation can operate under its own name, have its own address, open a bank account, sue (and be sued), and in theory, exist forever.

Finally, corporations are subject to specific tax rules. Corporate tax rates are generally lower than personal income tax rates. In addition, operating a business through a corporation may allow for the allocation of profits, tax deferrals, and, in some cases, income splitting between the corporation’s shareholders. A capital gains exemption may apply in the event of the sale of qualified small business corporation (QSBC) shares.

In a nutshell, incorporating a business comes with several advantages. Nevertheless, it is best to seek legal counsel to determine the most appropriate corporate structure for your business.