Incorporation can be the best thing that ever happened to you and your small business, or a wrecking ball moment that sinks you into poverty.
Here are the pros and cons of incorporating:
You are NOT your business
- Reduces Personal Liability
- When you are a operating as a sole proprietor, your personal assets can be seized to pay your business debts. If you incorporate your business, it becomes it’s own separate entity in terms of liability and financial responsibility.
Though your business is still liable for any debts it incurs, as a shareholder your personal assets are protected.
- Unlike a sole proprietorship which begins and ends with the owner, corporations can exist regardless of ownership changes.
- Corporate tax rate is 13 per cent on the first $500,000 of net income
- Personal tax rates increase as your income increases
They say, “Nothing in life worth having comes easy…” and such is often true with business incorporation…
Cost to incorporate
- $700-$1,000 with a lawyer (one-time charge)
- Benefit: They will look at the long-term picture to ensure you have the correct corporate structure to maximize tax savings.
More government reporting
Annual report for the BC Corporate Registry
More tax returns
Once you incorporate you will have to file a corporate tax return AND a personal tax return
- $1,500/ year if you choose a Homeroom-recommended accountant
Increased accounting costs
- If you thought that your quarterly bookkeeping package was on the high end, you will be rattled by the cost increase once you incorporate
- At Homeroom, minimum $2,400/ year for a straightforward home-based business
On the agenda for next week?
- Hack: I’ve incorporated. What’s next?