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When you have a new business idea you’ll likely start by mapping out your business plan, finding your perfect business name, and deciding if you’ll start the business alone or with partners. Soon after, however, you’ll need to think about the legal and accounting side of things, and the first thing you should think about is whether it’s the right time to incorporate your business. 

While each business is different, the reasons to incorporate will all be the same. You’ll need to figure out where your business fits within each criterion, as this will help determine whether you incorporate today, tomorrow or after a few more pieces have settled in your business.

In this article we’ll explain how incorporating can help your business, limit your liability, decrease your taxes, and more. Don’t worry, you won’t need a law degree to understand the benefits.

Limiting Your Personal Liability

When you incorporate a business, you’ll be creating a new legal entity called a corporation. This means that the corporation’s money and assets will be owned by the corporation and not the shareholders.

The primary benefit of incorporating and having a separate legal entity is that it limits your personal liability. This is because your personal and business assets will be completely separate. 

For example, if your business is sued or gets into financial difficulty, your personal assets will be protected because you incorporated. The major exceptions to this are personal guarantees, which are common for bank loans, or directors of a corporation who can be held liable for specific items, including unpaid employee wages and failing to remit source deductions for employee income taxes. 

Alternatively, if you do not incorporate and operate your business as a sole proprietorship or a partnership, you will remain personally responsible for the debts of the business—which can put your personal property (like your home, car, and computers) all at risk.

So if your business is in an industry that has a higher likelihood of liability, then you will likely incorporate sooner rather than later. Even businesses that are in seemingly “low-risk” industries often find themselves incorporating early to add an additional layer of protection and to ensure that the shareholders won’t lose more than their initial investment into the business.

The Taxman

As business owners, we always try to reduce our taxes so that we have more money to grow our business. Thankfully, incorporating is a common way to minimize a business’s tax burden. 

This is because corporations are taxed differently than individuals. In practical terms, the more money you’re able to leave in the corporation, the more money your business will save. This is because businesses are taxed at a lower tax rate than personal income taxes. You’ll also have more options to pay yourself through salary, dividends, or a combination of both. 

Tax questions can be confusing and depend on each business. This is why it’s always best to speak with a tax professional or accountant as your business grows.

Acting like a Pro

Another benefit of incorporating is that your business will appear more professional. After you’ve incorporated, you’ll sign contracts and send invoices through your corporate entity, rather than your personal name. And as we know, anything that helps your business seem larger than it is, whether you’re a freelancer, startup, or small business, will help you land the bigger clients. 

Saving You Future Headaches

Incorporating today will save you future headaches and hassle. If you’re going to charge money for your product or service, you’ll need to set up a lot of processes and software at the outset: payment processors, accounting software, purchasing domain names, bank accounts, and more. If you don’t start by incorporating, you’ll have to go through the hassle of switching over all these items to your corporation once it’s setup. 

Switching these over isn’t a small endeavour and by making the decision to incorporate early on, you’ll save hours of time, allowing you to focus on what you do best—growing your business!

Incorporating is Easier than Ever

Companies like Founded make incorporating your business a breeze. They automate all of the processes to provide you with a complete incorporation, including all government filings, business name reservations, and organizational documents to properly structure your company. Best of all, everything can be completed in minutes. This means that you can fully incorporate your business, including obtaining your certificate of incorporation and all organizational documents, in less than 30 minutes after starting on Founded. 


Ready to take your next step towards starting your business?

If you are looking for one-on-one support for your small business, give the Business Link Business Advisors a call at 1-800-272-9675 or email askus@businesslink.ca. You can also visit the events page for upcoming activities!

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Derek Hopfner

Derek Hopfner is Co-Founder of Founded and former business lawyer. Founded is the easiest way to start, build and grow your business. Thousands of businesses and law firms trust Founded to automate legal work, including incorporations, legal documents, and ongoing compliance. You can learn more about Founded here, use it’s free business name search tool or follow Founded on Twitter.
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