One of the first items to consider is whether to incorporate or register a business when first beginning your start-up. Most Canadian businesses start small and grow over time. Typically, entrepreneurs will start out as a sole proprietor, which makes sense given the ease with which you can create such an entity. It’s suited for small business owners. When determining whether incorporation or registration is best suited for you, there are a number of factors to consider.
Sole Proprietorship doesn’t offer as much protection as incorporated businesses do. Plus, as your business grows, the sole proprietorship business structure may not be suitable because your business will now face a different set of risks that require protection.
Therefore, it makes sense to consider incorporating your business if you’re in Ontario and looking to scale your business. The benefits of incorporating your business are immense regardless of where your business is situated but this article will focus on incorporation within Ontario.
7 Reasons Your Business Should Incorporate In Ontario
That said, here are seven reasons why you need to incorporate in Ontario. Keep on reading to learn more.
1. Limited Liability
This is perhaps one of the biggest benefits of incorporating a business. If your business has risks where liabilities can occur, the liability is separate from the individuals who own the business. The same thing can be said for debts. The corporation is able to obtain debt on its own exclusive of the business owners. If there is a default on the debt obligation, unless the owners have personally guaranteed the debt, the obligation is the sole responsibility of the corporation and not the business owners. The business is the entity responsible for the transaction. When creditors are coming to claim their dues, they often aren’t able to go after the owner’s assets. Instead, the company assets will pay off those debts.
Part of the business could be liquidated if necessary to pay off those obligations. In most cases, the owners will be safeguarded. In a sole proprietorship, there is no distinction between the business and the owner. Therefore, creditors could pursue their debts against the owner’s assets. But, with a corporation, your assets are much more protected.
2. Improved Reputation/Credibility and Name Protection
Whether you realize it or not, the brand image of your business matters.
You might improve your company’s reputation tenfold by just incorporating. When operating a business-to-business (b2b) operation, other businesses provide much more credibility to an incorporated business. All incorporated businesses have a defined legal ending such as Inc, Corp, or Ltd. Incorporated businesses also benefit from business name protection, while sole proprietorships and other business structures do not. Once incorporated, the exact business name is protected within the jurisdiction of incorporation, where you have exclusive use of that particular business name and brand.
3. Raising Capital Is An Option
Once you’re incorporated, you have the option to sell securities to raise capital. Stocks and bonds are perhaps the most commonly traded securities that your business could also use. Remember, some businesses need capital in order to function. Borrowing money as a sole proprietor, general partnership or registered startup isn’t always easy, and even if you borrow from a bank or lender, you’ll be liable to pay for it personally as a sole proprietor or general partnership.
Fortunately, shares allow you to raise equity capital quickly and investors could freely trade their shares on the open market should they wish to do so. Remember, their goal is to make money. So, if your companies’ shares increase in value, they could sell them for a profit. Once your shares are valuable enough, it’ll prompt more investors to invest in your company, thus raising more equity capital.
Because an incorporated company assumes a separate legal identity, It continues to exist as long as it is not dissolved by the directors or canceled by Canada Revenue Agency or the Provincial government for non-compliance. The founders of a company don’t need to be present for it to continue running. Instead, other people can take over and continue business as usual. Therefore, there’s technically no limit to how long an incorporated company lasts. The same can’t be said for other business structures, such as a registered business that needs to be renewed every 5 years.
5. Attracting Investors
Investors are more likely to invest in an incorporated business than one that isn’t. The primary reason is that these companies have limited liability. The limited liability applies to their ownership or investment in your company.
As a result, if something goes wrong with your company, they’re not personally liable. But most of the time, these investors only need a return on their money. Nevertheless, being incorporated might be a helpful feature for attracting investors. Plus, it gives the impression that your business is trustworthy. Incorporating in Ontario is indeed a great business decision.
6. Lower Taxes
This is undoubtedly one of the most popular reasons people seek to incorporate their business in Ontario. You can reduce taxation through corporation taxes by incorporating your company. In comparison to personal taxes, the company tax you pay is typically lower. Whether you run a small or large business, paying fewer taxes will improve your bottom line.
7. Employees Benefits
Your employees may gain from a profit-sharing benefit scheme if your company so chooses. These are intended to motivate personnel in an organization. Some employees may remain very motivated if they receive a portion of the profits. Since they are driven by the prospect of soon receiving a share of the company earnings, employees are likely to put in more effort.
Regardless of where you are located, if you own a business, incorporation becomes more critical as your growth trajectory goes higher. Getting your business incorporated is rarely a lengthy process in Ontario and can actually be completed 100% online. Taking the time to incorporate your business is worth it. Protect your business and incorporate today.