Edmonton Accounting Firm | When Is the Best Time to Incorporate
Some business owners start out very small according to Edmonton accounting firm. Thinking that they will incorporate their business once they grow quite large. And while that can be an effective strategy.
Entrepreneurs who own proprietorships may have more risks associated with running a proprietorship. Then if they incorporated their business in the first place.
The first thing that people who run proprietorships should realize, is that they hold all of the risk of operating a business. If they do not incorporate. And while some businesses run higher risk of getting sued than others.
Edmonton accounting firm says the risk of getting sued is never zero. And even extremely low risk businesses can get sued. And if they are not incorporated, that means their personal assets are on the line. Including their home, their vehicles, and their savings.
By incorporating, entrepreneurs get what is called limited liability. And that protects them if people sue the company. By suing the company, and the company’s assets. And not the directors of the company.
And while incorporating can protect personal assets. That is not the only thing that incorporate protects. Many entrepreneurs think that if they have gone to corporate registries to register their tradename. That will legally protect the name that they operate under.
However, this is not necessarily true. It is considered a placeholder. But it will not protect the business owner. If somebody else takes their tradename and incorporates it first.
Therefore, to actually protect their tradename. Business owners should incorporate, so that they protect the name that they are operating under. And ensure that nobody else can operate under that same name.
Another way that business owners can benefit from incorporating their business. Is so that they can have their own WCB number. Because that is often a requirement to get hired onto a jobsite.
The WCB often refuses to issue a number to people who are running proprietorships. Because they are more likely to be a subcontractor. However, they also would not likely to be covered by the prime contractor either. Making it difficult to accept jobs that acquire them to have their own WCB number.
By incorporating their business. Business owners will be able to get at the BC be numbered issue to them. Because once they incorporate, WCB will not question if they are anything but the primary contractor.
And finally, many companies simply refuse to hire proprietors. Because the company runs the risk of Canada revenue agency considering them to be employees of the company instead of their own entity.
But once a company incorporates their business. That risk is completely eliminated. And Canada revenue agency will never consider incorporated businesses to be employees of the company who hired them.
Therefore, in order to be able to qualify for more jobs. Businesses should consider incorporating. And by incorporating sooner in their business. It will be able to get more jobs, that will allow them to grow even larger.
There are many reasons why proprietors should incorporate their business. They should talk to their Edmonton accounting firm to discuss the benefits as well as the costs associated with this. So that they can make an educated decision that is most beneficial for their business and for themselves.
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While some entrepreneurs operate their proprietorship, thinking that when they are large enough they will incorporate says Edmonton accounting firm. However, not only does not incorporating make it more difficult to grow larger. It also can cost an entrepreneur far more in taxes than they may realize.
The highest personal tax rate in Alberta is a 48%. And since proprietors file all of the income that they earned in their proprietorship personally. All of the money that they earned is taxed at a personal tax rate.
However, the tax rate for incorporated businesses in Alberta is only 11%. And businesses can only get this rate once they incorporate. Therefore, business owners may save up to 37% on taxes simply by incorporating their business.
Many proprietors think that it is so much more expensive to file their year-end taxes when they are incorporated. And while Edmonton accounting firm says this is true that the year-end will cost a bit more money. As well as the monthly reporting requirements.
Ultimately, the costs that they have to pay to incorporate, and maintain that corporation. Often is far less money than the entrepreneur can save in taxes.
The general rule of thumb, is that once an entrepreneur is making about fifty thousand dollars a year in net income. The benefits of incorporating outweighs the costs. And can help an entrepreneur save money.
While this is a general rule of thumb. Any proprietors who are wondering when the best time to incorporate their business would be. Should talk to their Edmonton accounting firm, and find out if it is more cost-efficient them to incorporate their business now.
In fact, proprietors may end up paying far more in taxes in a surprising way than they realize. Because as a proprietor, entrepreneurs need to pay source deductions, such as income taxes, EI and CPP.
However, by operating a proprietorship instead of a corporation. Means that business owners must pay both the employee and employer contribution of CPP. Which can add up to even more taxes then they initially realized.
Therefore, it is very important that any proprietors who are debating between incorporating and not. Should talk to their Edmonton accounting firm. So that they can do all of the tax calculations.
And let them know exactly how much in taxes they can save. Versus how much it would cost them to incorporate and maintain that incorporation.
In addition to saving money. It can even make proprietors even more likely to be able to get money. In the form of loans. Once they incorporate their business.
The reason why, is because banks and financial institutions typically will not issue business loans to proprietors. And if a business owner is going to need a loan to buy a building to operate their business out of, purchase assets that can help them grow their business.
Or needing financing for any other reason. By incorporating their business earlier, makes them able to qualify for those important loans. That they need to to help them grow their business.
By understanding the benefits of incorporating. As well as the costs both associated with incorporating, and with running a proprietorship. Can help entrepreneurs make the best decision. About what is in their best interest, the best interest of their business and their family.