Why incorporate?

Written by Incorporate BC on August 22, 2016. Posted in FAQ

Depending on the nature of your business, incorporation may or may not be worthwhile. Many people choose to incorporate for some of the following reasons:

1. Avoiding Personal Liability

   A corporation is a separate legal person, just like you. One of the chief benefits to incorporation is that if you incur liabilities while operating solely through your corporation in the regular course of business, those liabilities do not attach to you personally. This affords you the benefit of, for example, knowing that your personal home and bank accounts cannot be touched in the event that your business gets sued.

2. Tax Advantages

   At the onset it is important to recognize that most lawyers in British Columbia do not give tax advice. Whether or not incorporation can serve a benefit to you in saving money on your overall yearly tax liability is usually a question that you should ask an accountant. Corporations in British Columbia pay yearly tax at 13.5%, which should be lower than your marginal tax bracket on your personal income tax return. So in general terms, the tax benefit to incorporation is that if you are able to earn revenue and not spend all of it, you can pay 13.5% on your net income instead of having to pay approximately 20% to 48% on your net income.

3. Income Splitting

   Many people in British Columbia benefit from being able to split their combined income between two or more family members, which has the result of reducing a family’s combined tax payment for the year. Income splitting is not available to every family with a corporation, and the application of income splitting should always be discussed with an accountant.

4. Raising Capital

   Having a corporation can allow you to get money into your business from investors in exchange for offering a stake in ownership, which is represented by shares. The parameters of how you can go about offering shares is governed by the Securities Act [RSBC 1996] c.418, and a lawyer can give you further advice on how to go about offering shares in accordance with the laws in British Columbia.

Incorporate BC

Incorporate BC connects business owners with local corporate lawyers to help them with incorporating their business.