Perks and snags of incorporation

Perks and snags of small business incorporationIn previous blog posts, we’ve discussed the perks and snags of sole proprietorships and partnerships. However, a corporation is very different from these two forms because the company is considered by law to be a unique entity, separate from the owners. The corporation can be taxed, sued, own property and can enter into contractual agreements at either the federal or provincial level.

Terms that identify a corporation include “Limited”, “Ltd.”, “Incorporated”, “Inc.”, “Corporation”, or “Corp.”

Owners of a corporation are its shareholders, who can’t be personally responsible for the corporation’s debts or obligations, and can’t claim any loss the corporation might experience. A board of directors is elected by shareholders to oversee major decisions. The corporation doesn’t dissolve when ownership changes.

Here are a few perks and snags that you may experience by incorporating your business.

Perks of incorporation

  • Possible tax advantage.
  • Shareholders can only be held accountable for their investment in stock of the company.
  • Transferrable ownership, no limited lifetime of the company.
  • Sale of stock allows for additional funds; it can be easier to raise capital.
  • Specialized management – management and ownership are separate.
  • Benefits may be deducted.
  • Separate legal entity.

Snags of incorporation

  • Most time-consuming and expensive form of organization.
  • Federal and state agencies monitor corporations.
  • Charter restrictions.
  • Legal formalities.
  • More paperwork, record keeping and filing requirements; closely regulated.
  • Often higher overall taxes.
  • Dividends may be taxed twice.
  • Possible conflicts between shareholders and executives.


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