IS INCORPORATION RIGHT FOR ME?

The first thing to know about incorporating is that not all businesses should be incorporated. If you are making a small amount of money, don’t require asset protection, and serve one, or a very small client base, it is unlikely that incorporating will serve your interests well.

If incorporation is not suitable given your business needs, we can advise you on alternative business structures such as sole proprietorships, partnerships, limited partnerships, limited liability partnerships, or joint ventures.  Our firm can advise you on the option that best fits your goals.

Having said this, choosing to incorporate can make a lot of sense in the right environment and for the following advantages:

• The unique ability of corporations to shield their shareholders from liability.
• When structured correctly, corporations can control the amount of income its shareholder earn and therefore, the amount of tax payable. For example, in British Columbia, the combined small business corporate tax rate (federal and provincial) for the first $500,000 of active business income is approximately 14% of total income. Compare this to individual income tax rates as high as 50% of all earned income if drawn directly by a shareholder.
• More likely to attract investors because their finances are different than their owners. Because of this, corporations can sell portions of their stock to investors which allows for new capital and ownership exit goals to be realized.
• An important but not widely known benefit of incorporation—credibility. Because corporations can exist long after their founders are no longer involved with a business, corporations tend to build up decades of goodwill that help consumers trust them more than unincorporated individuals who are often less financially stable and unable to continue once the founder is no longer in business.

Making the decision to incorporate involves a conversation with both a lawyer and a good accountant. Open Door Law is here to help if you want a chat.

Incorporating in BC or FEDERALLY IN Canada?

Most British Columbia business people prefer to incorporate in British Columbia rather than in Canada because most or all of their business is done locally in the province rather than outside in Greater Canada, North America, or the world, and there are often greater ongoing costs if federally incorporated.

To decide whether federal incorporation under the Canada Business Corporations Act is ideal, consider the following:

• Is it likely that your business will immediately or shortly after incorporation start to operate across Canada? A federally incorporated corporation can carry on business anywhere in Canada and though it must still register in each province or territory in which it does business, there may be less bureaucracy than filing a provincial company in every other province.
• Is your business one that values national prestige? Some business people believe that federal incorporation conveys a higher level of prestige, particularly if you plan to do business outside of Canada.
• Are you taking on outside investors? If you are, those investors may feel that national organization is more desirable and certain than incorporating in one province and then extra provincially registered in others.
• What sort of share structure and shareholder control do you require? British Columbia permits both limited and unlimited liability companies which is not the case federally. However, federal incorporation allows unanimous shareholder agreements that can restrict the powers of the directors and reallocate liability from the directors to the shareholders; which is available in some but not all provincial incorporations.
• Where do your directors reside? British Columbia has no local residency requirements for directors; however, federal incorporations require that the directors are Canadian residents.
• What are your registered office requirements? A federally incorporated company can have its registered office in any Canadian province or territory. A British Columbia company will have as its registered and records office an address in British Columbia as its legal address. Federal companies have to file annual returns in numerous provinces depending on where the corporation operates and this can be an added expense each year that a British Columbia corporation does not itself incur.