What are the advantages of Incorporation?
The first advantage of using a Corporation is that your personal assets are protected if your business is sued, or it goes bankrupt. When a Corporation runs out of money, creditors and claimants cannot pursue the Corporation’s owners (except in a few narrow circumstances that usually involve fraud on the owners’ part). This can give you piece of mind, and allows you to take risks in starting your business – or expanding it!
The second advantage of using a Corporation for your business is from a tax perspective. Corporations are initially taxed at a lower rate than other people, which gives you more after tax money to grow your business. It also allows you to “control” your personal income. As any small business owner can attest, earnings can vary a lot from year to year. By running your business through a Corporation, there are many ways that you can control how much of your business’s earnings go come to you each year. This allows you have a more stable income – which reduces the high tax cost from a unusually good year.
To properly enjoy the benefits of a Corporation, it is important that it is done right! Speak to a lawyer to ensure that you are properly getting the legal protection from your Corporation, and speak to an accountant to ensure that you can make use of the tax benefits.
Do I have to use a Lawyer to Incorporate?
While it is actually easy to incorporate on your own, ensuring that you have properly structured the corporation to your needs can be very difficult. You need to ensure that the corporation has all of the necessary bylaws and share structure, owns the right property, and enters into the right agreements to govern its relations to your business. You may also want to create a Shareholder’s Agreement if you are running your business with partners.
By incorporating with a lawyer, you can get things right from the get-go. You will also have the opportunity to discuss some of your options down the road – so that you can plan ahead as your business grows.
A Corporation is a specialized tool, with many potential benefits and several dangers associated…
How much does Incorporating Cost?
Corporations also require the filing of Annual Returns each year to keep them valid and registered.
Finally, Corporations must also file Corporate Tax Returns. You should speak to an accountant about this cost.
What is a Shareholder of a Corporation?
Shareholders can own either “voting” or “non-voting” shares in the Corporation. Voting shareholders can elect Directors to run the business. Non-voting shareholders have no control over the business, but own a share of its assets. Using non-voting shareholders in your business is a great way to split the income in your business between you and your spouse, or to any adult children you have without giving them any direct control over the business.
A person can be a Shareholder as well as a Director and Officer. In fact, they often are! Most small business will only have one person, the owner, as sole Shareholder, Director and Officer.
Other Corporations can also be Shareholders.
What is a Director of a Corporation?
Directors are responsible for making large scale decisions about the business, and appointing Officers. When you hear about the “Board of Directors” of a large Corporation, it is referring to these people. Smaller business will typically only have one, or a few Directors.
Unlike Shareholders, Directors can have some liability for what a business does. They control the decisions of the Corporations activities, and are personally responsible and liable for things like the non-payment of taxes, or other fraudulent activities by the Corporation.
Directors appoint officers to run the day to day operations of the business.
What is an Officer of a Corporation?
In larger business, Corporations will have many more officers. A Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are probably the most widely known titles for Officers in large business.