For any established business owner, there comes a time when they have to make the decision whether or not to incorporate. It's an important decision that can't be made lightly! In this article, we will discuss how to incorporate your company as well as some of the benefits you might get from incorporating. There are two primary types of incorporation - Sole Proprietorship and Corporate Entity. We'll also talk about how different structures affect how profits are taxed and how much money is required for startup costs.

First, there are a few advantages to a sole proprietorship: 

● Full control 

● No separate income tax return. Just include everything on the T1. 

● If you operate under your own name, you don't have to register it. If you do need to register, it is less expensive than a corporation. 

Now, here are advantages to a corporate entity: 

● Limited Liability Protection. That means if you are sued, the only assets that a person can get are those that belong to the corporation. Your home, savings, and other assets are protected. If you remain a sole proprietorship, everything is fair game. That means your business assets as well as all your personal assets. 

● Lower Tax Rate. The corporate tax rate is lower than the personal tax rate.

● Dividends. Using the distribution of dividends, it is easier to spread the business income among your family members. 

To begin the process, close the sole proprietorship. That means to cancel the business registration with the Province and contact the Canada Revenue Agency to cancel your business number, HST number, and payroll number. This can be done by telephone. 

Next, you need to transfer assets into the corporation. That includes anything physical like computers, furniture, vehicles, or other equipment. Intangible assets are probably goodwill. There is a formula for this but it will include your client list, trademarks, trade secrets, contracts, etc. 

When transferring assets do it under the provisions of Section 85 of the Income Tax Act by filing the appropriate forms. In this way, you avoid paying taxes on any of the assets, tangible or intangible, 

Your previous Workplace Safety and Insurance Board (WSIB) account will transfer to the corporation. 

There are also the mechanics of incorporating: 

● Name. Using a NUANS report you can find similar names and as long as there are no other existing names, you can proceed. 

● Business address. 

● Shares. Issuing shares of your corporation to yourself and others. 

● Minimum and maximum number of directors. A good choice is a minimum of one and a maximum of ten to give yourself some room to change if necessary. 

● Telephone and email address for official communications. 

Some mistakes you might want to avoid include selling your business assets for only $1.00. That is because the CRA will reassess the assets upward to fair market value and you will then be required to pay capital gains tax on the difference between the purchase price and the CRA-adjusted price. It

is also not a good idea to gift assets or transfer them without any monetary exchange. Again, this is a red flag for the CRA and you will end up paying capital gains taxes. 

The best way to handle a change from a sole proprietorship to a corporation is to work with professionals who have experience in this endeavor. That means your accountant, attorney, financial advisor, and anyone else who has the expertise.

Contact your Accountants today click on this link —> https://capexcpa.com/contact