Are you thinking to start your business? You are in the right track.
Congratulations! You are on your road to freedom, not only to financial freedom but the freedom from the bondage of “employee mentality.” You will be your own boss. However, you have to avoid another possible bondage, that is the bondage of being employed by your own business. Being a single proprietor (or even partnership) makes you a “self-employed” person, which is essentially an employee still. Dont get me wrong, you can run a business under single proprietorship and partnership type but make sure that you dont do all the work. Make sure that even when you are not around, your business still runs. It should not be dependent on you.
There is another type of business called a corporation. This type of business is unique and has been commonly used by the business that we knew, the big companies and there are reasons why they use this type compared to single proprietorship or partnership. Here are some of its advantages:
- SEPARATE LEGAL ENTITY. The corporation is considered a legal entity. The act of incorporating creates a legal entity separate from its shareholders or its members. In Canada, under Canadian law, business and not-for-profit corporations have the same rights and obligations as a natural person. Among other things, they can possess and acquire assets, obtain loans, enter into contracts and sue.
- CONTINUOUS EXISTENCE. It can have perpetual existence. It exists until it is liquidated and death or change in ownership has no effect on the corporation.
- LIMITED LIABILITY. The liability of the incorporators towards the creditors is limited to their investment in the company. This means that in case the business goes south and the company is subjected to liquidation, if the company's assets are insufficient to meet its liabilities, nothing is required to be contributed by the owners. Only the owners' contribution is at stake rather than their personal assets (unless the shareholder or member has provided personal guarantees for the corporation’s debts)
- BETTER ACCESS TO FINANCING. Additional capital can be raised easily through stock markets, private investments, etc. Corporations are often able to borrow capital at lower rates than those paid by other types of businesses; banks, financial institutions and other sources of financing tend to perceive such loans as lower-risk investments.
- POSSIBLE TAX BENEFITS. Governments are giving corporations a lot of leeway with regards to taxation as it normally generates employment making the economy to improve and stay afloat. Business corporations are taxed separately from their shareholders. The corporate tax rate is generally lower than the individual tax rate. In some cases, incorporation offers some fiscal benefits and to take advantage of this, you have to consult with your accountant.
- ORGANIZED. The ownership is represented by the number of share certificates held by a person and they can have an annual meetings and elect their own board of directors (BOD) and the board can elect its own officers.
- TRANSFERABILITY. Ownership of shares can be transferred without he approval of the rest of the owners making the transfer of ownership very easy.
For Canadian businesses, there are other benefits that you may want to know:
Benefits of incorporating at the federal level
Once federally incorporated, business and not-for-profit corporations also benefit from:
• use of a name across Canada
• registered office location anywhere in Canada
• recognition as a Canadian entity.
Use of a name across Canada
Incorporating at the federal level means that a corporation can operate under the same name across Canada. This flexibility can be very useful, especially if the corporation decides to have operations in different provinces or territories.
Registered office location anywhere in Canada
A corporation's registered office can be located anywhere in Canada. Canadian entities incorporated under other laws may not benefit from this latitude. Business corporations and not-for-profit corporations also enjoy flexibility with regard to the location of their annual meetings. They can even be held electronically or outside the country.
Recognition as a Canadian entity
Business corporations incorporated under the CBCA and not-for-profit corporations incorporated under the NFP Act benefit from international recognition as Canadian entities. This is an important consideration if the corporation has clients abroad or is considering operating there.
[source: Government of Canada]
Now that you know that Corporation has its advantages over other types of business, start planning to build register your corporation and start building your empire.
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