It’s one of the top questions corporate lawyers are asked by both new entrepreneurs and existing business owners: Should I incorporate my business? Incorporating is a big step, one that should be carefully considered and reviewed with expert insight.
To help give you a picture of whether or not incorporating is right for your business, our Kamloops corporate lawyers share seven questions to ask yourself:
1. Do you want to protect your personal assets from liability?
For many business owners, one of the primary reasons for incorporating is to protect their personal assets from liability arising from their business. If your business is sued, being incorporated lets you protect personal assets from being seized by your business’s creditors, such as your:
This is not the case if you are an unincorporated sole proprietor.
An employer is responsible for the actions of his or her employees, so if you have an employee whose inattentiveness led to faulty building construction, or a food truck cook whose uncooked hot dog makes someone sick, you as the employer would be responsible.
If your business is incorporated, your personal assets would be protected because the incorporated company would be the employer (not you). If you were a sole proprietor and you didn’t have enough money to pay a claim out of your business pockets, then your personal assets—cars, boats, even your home—could be seized.
2. Is your work risky?
The higher the risk involved in your work, the more advantages there are to incorporate, as this further protects your personal assets from liability. If there is a fair chance your work or your employees’ work could cause damage that would lead to someone to sue, or if a mistake might have expensive consequences, our Kamloops corporate lawyers often recommend incorporating.
3. Do you need to raise financing, expand your business or bid on government contracts?
Incorporating your business can be an assurance to potential lenders that your business is properly organized and operated. It also creates a more convenient, flexible path to bring key employees into ownership of the business.
4. Do you want to increase commitment of your key employees?
Our Kamloops corporate lawyers are seeing more and more businesses of all sizes considering sharing ownership with employees as a way to improve staff engagement, loyalty and retention. When you’re incorporated, you have the ability to share company growth with your employees via either a share in profits through dividends paid to employee shareholders or growth in the value of the company, which can increase the value of the employees’ shares.
5. Are you considering selling your business in the near future, or do you want your family to have the option to take over or sell your business if you pass away?
When your business is incorporated, it can be easier to sell all or part of it to some of your family members or pass it on to your heirs. That’s because in sole proprietorships, you are the business, so when you die, the business essentially dies too. If your business is incorporated, you can sell select pieces of the ownership (called shares) to kids or other kin, and an incorporated business remains alive even if you die.
6. Would incorporating be a strategic tax planning step for you?
Depending on your income, and potential income over the next few years, it might make sense for tax reasons to incorporate. Every business is different and considerations about incorporating can change depending on if you are a start-up or five years in, so the answer to this question is different for everyone.
Our corporate lawyers work with tax lawyers and accountants to come up with a strategy to suit your short-term and long-term goals.
7. Does the annual cost of incorporating make sense for your business?
If your business was more of a hobby to earn some extra cash, the cost of incorporating might outweigh the benefits. That’s because you’ll incur initial and ongoing fees such as:
- Legal and accounting advice before incorporating
- Legal costs annually to keep the corporation in existence
- Accounting fees each year as additional financial statements and records have to be created annually by an accountant. Accountant’s tax preparation fees would also increase as they prepare personal and business taxes
Are you considering incorporating your business? Get expert legal advice from the Kamloops corporate lawyers trusted by local businesses small and large! 1-250-374-4463