Incorporating a Business in Canada: Pros and Cons Explained
Choosing whether or not to incorporate your business in Canada is a big decision — and one that could have long-term tax and legal implications. In this article, we’ll break down the key pros and cons of incorporating your business to help you decide if it’s the right move for your small business.
What Does It Mean to Incorporate in Canada?
Incorporation is the process of registering your business as a separate legal entity. Once incorporated, the business has its own rights, responsibilities, and obligations — distinct from those of its owners or shareholders.
Most small businesses in Canada choose to become a Canadian-Controlled Private Corporation (CCPC). This structure offers a range of tax benefits and legal protections. Other types of businesses (like sole proprietorships, partnerships, or nonprofits) are structured differently and are not considered corporations.
5 Benefits of Incorporating Your Business
There are several financial, legal, and reputational advantages to incorporating:
- Liability Protection: Your personal assets are protected from business debts or lawsuits.
- Tax Savings: Corporations are taxed at a flat rate, which may result in lower taxes compared to personal income tax rates for sole proprietors.
- Expense Deductions: Corporations can deduct a wider range of business expenses.
- Professional Credibility: An incorporated business often appears more established and trustworthy, which can help when seeking financing or partnerships.
- Perpetual Existence: Corporations continue to exist regardless of changes in ownership, making them easier to sell, transfer, or pass on.
The Drawbacks of Incorporation
Incorporation comes with some added complexity and cost:
- Startup and Maintenance Costs: There’s a fee to incorporate, and an annual fee to maintain your registration.
- More Complex Tax Filing: Filing corporate tax returns is more expensive and requires detailed bookkeeping and documentation.
- Ongoing Admin: Corporations have stricter legal and reporting requirements compared to sole proprietors.
That said, for most small businesses, these complexities are manageable — and the benefits often outweigh the drawbacks once you’re generating enough income.
How to Know If Incorporation Is Right for You
Here are a few questions to help guide your decision:
- Do you need liability protection?
- Are you planning to grow or seek outside investment?
- Do you want tax flexibility and potential savings?
- Are you earning more than $50,000 annually?
If you answered yes to any of the above, incorporation may be a smart move. In fact:
- If you’re earning over $80,000, you’re likely overpaying in taxes as a sole proprietor.
- If you’re over $100,000, incorporation almost always leads to tax savings that outweigh the extra costs.
On the flip side, if your revenue is under $50,000 and you’re not worried about liability, staying a sole proprietor might be just fine, at least for now.
One Quick Note About Partnerships
After decades of working with business owners, we’ve seen time and time again: business partnerships often go sideways. What starts as a great idea between friends can quickly turn stressful — and sometimes irreparable. Proceed with caution and make sure your structure protects everyone involved.
Final Thoughts
Incorporation isn’t for everyone — but it might be for you. If you’re unsure, our team at Emerald Business Solutions can walk you through your specific situation and help you make the right decision.
Ready to chat? Book your free consultation today. We’ll help you understand your options and feel confident in your next move.
FAQs
No, you don’t need a lawyer to incorporate, but it can be helpful—especially if your business has multiple shareholders or unique circumstances. You can also incorporate online through your provincial government’s website.
Generally, once you’re earning more than $50,000 annually and want liability protection or tax flexibility, it’s a good time to consider incorporation.
Federal incorporation allows your business to maintain a head office in any province. However, it also comes with stricter requirements. Provincial incorporation in at least one province is still required even if the business is federally incorporated.
In most cases, a business registered and based in one province is allowed to provide services in another province without complication. However, scale of business is a factor when determining requirements, and separate filings for provincial sales taxes where applicable may be necessary.
Yes. Many business owners start as sole proprietors and incorporate later when their income increases or legal needs change.
Absolutely! At Emerald Business Solutions, we’ve helped countless small business owners, contractors, and subcontractors through the incorporation process — from paperwork to corporate tax planning. If you’re not sure where to start or just want someone to walk you through it, request a free quote, and we’ll take care of the rest.
