The Benefits of Incorporating in Ontario: A Comprehensive Guide

By
The Tabuchi Law Team
October 18, 2022
5
min read
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Incorporating your business in Ontario is a strategic move that can unlock a world of incredible benefits, including limited liability, tax advantages, access to capital, and small business deductions.

If you're serious about growing your business, incorporating is a must-do. In this comprehensive guide, we'll explore the benefits of incorporating in Ontario in detail and provide you with the information you need to get started.

Limited Liability

One of the biggest advantages of incorporating your business is limited liability. This means that your personal assets are protected from the debts and liabilities of your business. In other words, if your business is sued or goes bankrupt, your personal assets, such as your home, savings, and car, are safe.

Limited liability is a crucial safeguard for business owners, especially those operating in high-risk industries. Without it, you would be personally liable for the debts and liabilities of your business, which could put your personal assets at risk.

Tax Benefits of Incorporating in Ontario

Incorporating your business in Ontario can also offer significant tax advantages. Corporations have lower tax rates than sole proprietorships and partnerships, and they can also take advantage of income splitting strategies to further reduce their tax burden.

For example, a corporation can distribute dividends to its shareholders, who may be taxed at a lower rate than the corporation itself. This can be a particularly effective tax strategy for families with children in lower tax brackets.

Access to Capital

Incorporated businesses also have easier access to capital than unincorporated businesses. Corporations can raise capital by issuing shares of stock, which can be sold to investors. This can be a great way to finance growth and expansion.

Additionally, incorporated businesses are often perceived as more credible and established than unincorporated businesses. This can make them more attractive to investors and lenders.

Small Business Deductions

Small business owners in Ontario can also benefit from the Small Business Deduction (SBD). The SBD is a tax deduction that reduces the provincial corporate tax rate on active business income for eligible corporations.

To be eligible for the SBD, a corporation must be Canadian-controlled and privately held. It must also have less than $15 million in active business income.

The SBD can save small business owners a significant amount of money on taxes. For example, a corporation with $1 million in active business income could save over $10,000 in taxes by claiming the SBD.

Seek Expert Advice

While incorporating your business in Ontario offers many benefits, it's important to seek expert advice from a lawyer or accountant to ensure that you're doing it correctly. There are a number of legal and financial considerations involved in incorporation, and it's important to understand them all before you make a decision.

A lawyer or accountant can help you with the incorporation process, advise you on the best structure for your business, and ensure that you're taking advantage of all of the tax benefits that are available to you.

Conclusion

Incorporating your business in Ontario is a smart move that can help you protect your personal assets, reduce your tax burden, raise capital, and grow your business more quickly. If you're serious about taking your business to the next level, incorporation is a must-do.

To get started, contact a lawyer or accountant who specializes in corporate law. They can help you with the incorporation process and advise you on the best structure for your business.

Here are some additional things to keep in mind when incorporating your business in Ontario:

  • Choose the right corporate structure. There are two main types of corporations in Ontario: private corporations and public corporations. Private corporations are more common for small businesses, while public corporations are typically used for larger businesses that want to raise capital from the public.
  • File the necessary paperwork. To incorporate your business, you'll need to file a number of documents with the Ontario government. You can find more information about the required paperwork on the ServiceOntario website.
  • Pay the incorporation fee. There is a fee to incorporate your business in Ontario. The fee varies depending on the type of corporation you choose and the number of shares you're issuing.
  • Comply with corporate law requirements. Once your business is incorporated, you'll need to comply with certain corporate law requirements. This includes holding annual meetings, keeping accurate records, and filing annual reports with the government.

Incorporating your business in Ontario is a big step, but it's one that can pay off in the long run. By following the tips above, you can ensure that the incorporation process goes smoothly and that you're taking advantage of all of the benefits that incorporation has to offer.

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