You are self-employed, and are thinking about incorporating your activities? Then this article is for you. We will outline the major benefits and some of the responsibilities that come with incorporation.
- Limited liability
As a self-employed worker, your assets are the ones that guarantee the execution of your professional engagements.
By incorporating your activities, you create an entity that will be distinct from you in every respect.
The newly created corporation will have a legal personality distinct from yours, it will therefore be the one signing all the contracts relating to the services it offers, and incidentally, it will be the sole to be held liable in case of contractual shortcomings.
It will therefore be its own assets, which are separate from yours, which will serve as a guarantee for the contracts it will enter into.
The tangible application of this is, in the event of a legal action against the corporation, it is only that corporation which will be held liable. Your personal patrimony will therefore be protected from such risks.
- Perpetuity of the corporation
The company has a legal personality distinct from its shareholders and directors, it does not depend on their well-being. As a director and/or shareholder of the company, you can build an entity that can benefit future generations!
- Revenue and tax planning
By creating a company, it will be the one generating the revenues, which can later be distributed to you in several ways, depending on your status within the company.
You can be paid in dividends (if you remain a shareholder), or you can receive a salary (if you are an employee).
The advantage of having the company generating itself the revenue, is that on one hand, the tax rate is much more advantageous than that of individuals, and on the other hand, you are not required to redistribute all profits during the same fiscal year.
By doing so, with proper planning, you can regularize your income from one year to the next, and thus you will have greater flexibility to plan income tax.
- Raising Capital
Contrary to being self-employed, a corporation can raise capital other than by contracting debt through personal loans.
A corporation may issue shares that may be offered to friends and family in exchange for their financial participation. Be careful, however, to ensure that you keep the company’s “closed” status, otherwise you are exposing it to the obligation to produce a prospectus in order to enabling it to solicit such investments from third parties. For more information on what a private company is, see our article on the subject.
Moreover, the injecting of capital into the company in exchange for shares is only one of the many options available to you.
- Notoriety and administration
Corporations generally benefit from a favourable bias as to their reliability and the seriousness of their activities. It also allows you to do business under a name other than your own, which can result into creating a trademark that will have an intrinsic value distinct from the corporation’s value.
- The challenges of incorporation
While the benefits are very attractive, the decision to incorporate should not be taken lightly as these benefits come with new responsibilities, both financial and administrative.
- The Fees
The incorporation, as well as the maintenance of a corporation, is subject to certain costs. Although these costs are not prohibitive, they definitely need to be taken into account
Incorporation fees will vary depending on whether you choose a federal or provincial jurisdiction for your corporation, the latter being generally less expensive if you strictly operate in the province of Quebec.
- The administrative aspect
In addition to the fees, there are administrative aspects specific to managing a corporation.
A corporation needs to file annual declarations to the registrar and prepare the necessary resolutions to be registered in its book. It will also have to file its own provincial and federal tax declarations.
To help you make this important decision, there is nothing better than consulting a professional who will be able to advise you according to your specific needs.
Me Jean-Philippe Ponce, in collaboration with Valentin Tanasescu, articling student
Ponce Lawyer Inc.
This article does not constitute legal advice, to obtain a solution adapted to your needs, please consult a lawyer