Canadian small business owners can protect personal assets and reduce the stress of startups with easy incorporation
In 1995, an American family bought a home from a corporation that turned out to have some extremely costly defects.
VirginiaBusines.com says the family tried to sue the selling agent - the business owner - who had sold them the house. The court refused to impose any personal liablity on the agent because he had corporate protection.
This case demonstrates the extent to which incorporating a small business can protect a business owner from liability in the event that business transactions go bad.
Incorporation may seem like a hassle - but it doesn't have to be. There are plenty of online incorporation services that can help entrepreneurs file the appropriate documents with the click of a mouse. Moreover, devoting a little time to incorporating your business can really pay off in the long run.
Benefit from limited liability
As the American tale illustrates, limited liability might be the main advantage of incorporating a company. With sole proprietorships, an entrepreneur's personal assets - like a house or car - might be seized to pay business debts.
But with a corporation, business owners can't be held responsible for the debts of a corporation. When a business is incorporated - whether through federal incorporation or provincial incorporation - an individual shareholder's liability is limited to his or her investment in the company, reports About.com.
At the same time, corporations are entitled to the same rights that an individual proprietor would have. Corporations can own property, carry on business and even sue outside parties if needed.
Raise money without the headaches
In addition to protecting assets regardless of business practices, entrepreneurs might find that incorporating their businesses will protect their personal finances with the amount of money a small business owner has to invest in a company up front.
It's true that small business incorporation services have a fee, but Entrepreneur.com says that entrepreneurs who incorporate are more easily able to raise investment capital. For one thing, the source explains that shareholders appreciate the limited liability aspect of corporations just as much as the founder. Capital investors will be more likely to put down money if they know their assets are secure.
Additionally, shares of stock can be transferred directly to new investors; this makes it easy for entrepreneurs to get funders as they need them without writing up new deeds of ownership.
Take advantage of tax credits
Small business incorporation can help entrepreneurs save funds up front, and it might also help them garner cash savings throughout the life of their businesses.
Small business incorporation gives entrepreneurs tax deferral potential. This means business owners will have the chance to defer taxes until they are in a lower tax bracket to maximize savings.
Stay Protected with Good Practices
Business formation doesn't end when initial shares are sold and stockholders are on board. After entrepreneurs incorporate a business, it's important to document all corporate decisions to ensure that corporate protections are safeguarded.
According to Inc. magazine, many small business owners forget to keep written records of actions carried out by a company. Though common, this can be a costly mistake. Entrepreneurs should exercise their corporate rights in order to preserve them.
Newly incorporated businesses should hold regular meetings of shareholders - in keeping with corporate bylaws - and write out the decisions approved by in a corporate record book. Inc. says this ensures that courts will honor a company's corporate status.
Don't Delay
Nielsen Global's Consumer Confidence Index reveals that Canadian consumers are increasingly confident across all markets. As consumers tend to see incorporations as reliable, this promising climate might present the perfect opportunity for entrepreneurs to incorporate their businesses. Why wait?
