Thinking of starting a new business? Maybe you’ve been operating as a sole proprietor? Well, it may be time for you to consider setting up a corporation.
A corporation is a legal entity where the corporation directly holds assets, rather than the owners. Owners of corporations are called “shareholders” and are issued shares, which represent their ownership interest in the corporation.
There are many advantages to operating under a corporation, and in this week’s blog we give you a short crash course on those benefits.
Credibility
First, incorporating can provide your business with a credibility boost. A corporation shows customers, lenders, suppliers, and potential investors that your enterprise is legitimate and long term. This, in turn, can make it easier to obtain financing and find investors if you are looking to grow your business.
Liability
Operating under a corporation, rather than as a sole proprietorship, also significantly decreases your potential personal liability. If something goes wrong with a customer or another third party, their recourse is only against the corporation and not against you personally. This means that only corporate assets can be at risk and not your own.
Should the corporation go bankrupt, you, as a shareholder, would not be liable for the corporation’s debts.
Taxation
Setting up a corporation also has tax benefits, as corporate tax rates tend to be lower than personal income tax rates.
But as you know, we are lawyers and not accountants (thankfully, as math was never our forte!). You should discuss your decisions to incorporate with your accountant before proceeding. They can tell you if the tax advantages outweigh the costs of incorporating.
When you are ready to set up your corporation, be sure to incorporate us in your plans (like what we did there?).
Robin K. Mann, Associate Lawyer