In 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.