Advantages of Incorporating
The most common reason for incorporating is to shield a business owner from the debts and liabilities of the business, but there are many other advantages.
Limited liability – The owners of the corporation (the shareholders) are generally not liable for the debts and obligations of the corporation unless they have provided a personal guarantee.
Perpetual existence – The existence of the corporation is not affected by a change in the people that own and/or manage the corporation. The shareholders, directors and officers may retire or sell their shares, but the corporation continues in existence.
Capital acquisition – Corporations can issue various classes of shares (in addition to other debt instruments such as bonds) in order to raise capital. This is an attractive feature to investors because it allows for partial ownership of the corporation.
Tax advantages – there are tax advantages to incorporating your business, such as lower income tax rates and the carrying forward of losses from previous years to offset profits in subsequent years.
Mergers & acquisitions – a corporation can merge or amalgamate with another corporation.
Disadvantages of Incorporating
Start-up costs – a corporation is more expensive to form and organize than other methods of carrying on business.
Record keeping requirements – A corporation is required to maintain corporate records, elect directors, hold directors and shareholders meetings, and provide shareholders with financial information, among other duties.
Annual filings – corporations are required to file annual government returns.
Double taxation of dividends – Income generated by a corporation is taxed at both the corporate level and shareholder level. A corporation must pay taxes on its income and the shareholders must pay taxes on the dividends (the profits they receive from the corporation).