Edmonton Accounting Firm | Reasons to Incorporate a Business
Learning how to operate a business contains a lot of learning curves according to Edmonton accounting firm. And when it comes to incorporating. Many entrepreneurs may not completely understand the reasons why they should consider incorporating their business.
In fact, many business owners think that it is simply an expense, with no tangible benefits to their business. Which can make them not want to incorporate their business. Even though it can significantly benefit them.
The first thing that business owners should understand, is that incorporating their business can actually protect themselves. As a sole proprietor, they shoulder the entire liability of their business.
Which means if they get sued well conducting their business. It is the person that owns the company that gets sued.
This means, that if an entrepreneur has assets, such as their family home, financial savings or even investments. These things will be at risk if the lawsuit proceeds.
And while many proprietors think that they are either not running their business full-time. Therefore there is limited risk. Or that they operate a low risk business, such as a web design company.
But the most important thing to keep in mind according to Edmonton accounting firm. Is no risk is zero. The matter how low-risk a business is.
Therefore, if a business owner ever wants to protect their assets. The best thing that they should do is incorporate their business. What this does, is it puts the liability onto their business. So that if a business gets sued.
It is the company that is liable, and not the directors, or their assets. Because of this benefit. Many proprietors find that all of the costs associated with incorporating their business. Is money well spent. In order to protect themselves, especially things like ensuring their family will still have a home even if the company get sued.
Another benefit to incorporating includes protecting their tradename. Especially if not nor has spent many years building their proprietorship, and working hard to create a good name for themselves. If they do not incorporate their business. They are not legally protecting it.
Many entrepreneurs assume that if they have gone to corporate registries in order to register their tradename. This offers the same protection. This is not true according to Edmonton accounting firm.
Therefore, if business owners want to ensure that no one else can take their tradename and incorporate under it. They should do it first. So that they can ensure that the hard work they have put into their business. The means their own.
Another benefit to incorporation. Means that entrepreneurs will be able to get a WCB number. That is often required to get onto many job sites. As a proprietor, they might not be able to get one from WCB.
And while some independent contractors can use the coverage of the company that hired them. As is not generally the rule.
And by getting their business incorporated. Means that they can accept a wider variety of business that they bid on. Allowing them to take on more jobs, to grow their business.
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While there may be a wide variety of benefits to incorporating says Edmonton accounting firm. When it comes right down to it, many proprietors think that the cost is much more greater then the benefits.
However, while there is a significant cost associated with incorporating a business. From paying for the incorporating documents. To paying Edmonton accounting firm higher fees to do a more complex corporate year-end tax return.
And even paying additional fees to do the monthly reporting that is required of them. There are expenses associated with incorporating, that many business owners do not like.
However, many proprietors fail to realize all of the costs associated with operating a proprietorship business help. Since proprietors have to file their business taxes along with their personal taxes. Their business taxes get taxed at a personal rate instead of a corporate rate.
What this means, is depending on how much money they have made in a year, never tax bracket they are moved into. Is the tax rate that their business gets taxed as well.
The highest personal tax rate in Alberta is currently 48%. However, the corporate tax rate is only 11%. Which means many businesses might be saving 37% of taxes, as soon as they incorporate their business.
However, some proprietors still think that they would have to be making hundreds of thousands of dollars every year in order to save that 37% in taxes.
However, the threshold that makes running a corporation a better financial decision. Is once an entrepreneur has made fifty thousand dollars in net income per year.
Therefore, the threshold is much lower than many entrepreneurs assume. And if they have made that much money or come close to it. They should talk to their Edmonton accounting firm about incorporating sooner rather than later.
Although that is not the only reason why it is financially beneficial to incorporate a business. It can also help entrepreneurs qualify for business loans from financial institutions or banks. If an entrepreneur is ever going to need financing or loan.
Since business owners might need financing from time to time. Whether it is to purchase assets that will help them grow their business. Or purchasing a building, that will allow them to serve more customers. The ability to qualify for loans is important.
Therefore, if entrepreneurs are ever thinking that they might need a loan. They should think about incorporating sooner rather than later.
So when it is time for them to apply for that loan. They will be held up by then having to stop and incorporate first.
By understanding all of the benefits associated with incorporating. Can help entrepreneurs make the decision that is most beneficial for their business and for themselves.