Should I incorporate my business
Posted by troutlakegroup
Should I incorporate my business?
There are a number of factors to consider when you are thinking about incorporating your business. Some of these factors include:
1. Is your business making you more money than you need to support your life style?
If the answer to this question is “yes” then you may be able to realize tax savings by having this excess income taxed in a corporation at tax rates that are lower than your personal marginal tax rate.
- Do you have family members with whom you would like to split your income?
You may currently be paying your family members for services that they provide to your unincorporated business.
If you are incorporated you may also be able to pay your family members dividends if they own shares in your corporation. Please note that if dividends are paid to minor children the dividend income may be attributed back to the parents.
- Although you have business insurance for your proprietorship, are your personal assets (home, investments, etc) at risk?
When you operate as a proprietorship you are personally liable for all business debts and legal action against the proprietorship. The liability of shareholders and directors of a corporation is limited.
- Do you have the time and knowledge to attend to the additional reporting and filing requirements?
An incorporated business must have annual financial statements prepared. This includes both a balance sheet and an income statement. These statements are necessary in order to complete the corporate tax return. When you operate as a proprietorship only an income statement is needed in order to prepare your personal tax return.
An annual corporate tax return will need to be prepared and filed within six months after the corporate year end.
A company incorporated in BC must file an annual report with the BC Registrar of Companies.
The corporation must have director’s minutes and resolutions prepared at least annually.
- Are you willing to engage others to assist you with the additional reporting and filing requirements?
By this we mean that you may need to engage the services of an accountant and legal council to assist you in preparing and filing the items discussed in point number three above.
- Are you willing to possible pay increased WorkSafeBC premiums?
When you operate as a proprietorship, WorkSafeBC coverage is optional on the owner’s earnings. When you operate as corporation you are required to pay WorkSafeBC premiums on both the owners and the employees’ earnings.