Are you considering incorporating your business? Do you have questions
about just what this will mean for your company? Though there are many
factors at play in the decision to incorporate, the decision doesn't
have to be difficult. Industry Canada offers some key things to keep in
mind on the pros and cons of incorporation.
What changes with incorporation
Incorporating
creates an entirely new legal being called a corporation, more commonly
called a "company." The corporation has the same legal rights as a
regular person does. This means it can take on assets, take on debt,
enter contracts, file or be on the receiving end of a lawsuit and even
be held liable in court for any crimes.
What's more, remember that a corporation's assets and money belong not to its shareholders but the corporation itself.
A
business that becomes incorporated has its separate legal status,
rights and liabilities and property continue to exist until the company
is dissolved. This is the case even if one or multiple shareholders or
corporation directors sell their shares, pass on or quit the
corporation.
Liability
When your business becomes
incorporated, the liability of its shareholders becomes limited. As a
general rule, this means those shareholders can't be held responsible
for the corporation's debts. And if the company goes under - bankrupt -
then a shareholder won't have to give up anything more than their
investment stake (unless, of course, they're personally guaranteed the
company's debts).
Even more, shareholders cannot be sued by
creditors for debts taken on by the corporation, despite the fact those
shareholders own the company. But bear in mind this distinction: if a
shareholder has a position with the corporation, such as a director,
then in certain circumstances they can be held responsible for the
corporation's debts. Directors have placed upon them a number of
obligations under the Canada Business Corporations Act, for example
holding them liable for certain actions or failures to act.
Tax rates
Remember
that corporations are taxed separately from the people who own them.
And with corporate tax rates that are generally quite lower than the
rate imposed on individuals, incorporating your business may give you
some financial advantages.
Capital access
Incorporating makes
it much easier to raise money than it is for other types of businesses.
While other businesses have to rely only on their money and loans for
capital - limiting their ability to expand - a corporation can issue
bonds or share certificates to investors.
Corporations can also
borrow money at lower rates than other businesses. This is because
financial institutions view corporate loans as much less risky than
loans handed out to other business types.
Article Source: http://EzineArticles.com/8113795
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