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E-Myth – “Why most small businesses don’t work & what to do about it”

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Edmonton Accounting Firm | When Should Businesses Incorporate


Because there is no specific timeline when businesses should incorporate, Edmonton accounting firm says many entrepreneurs have questions about this. However, when many business owners think about incorporation. They often see it as a huge expense with little to no benefit.

In fact, many business owners think that incorporation does not offer them anything until they own a million-dollar company. And so it is not even on their radar while they are starting out.

However, this is not the case. They can offer a wide variety of benefits. Both financial and nonfinancial. That business owners should be aware of. So that when it is time to incorporate. They will be able to recognize that.

Ultimately, the most successful business owners are the ones that incorporate immediately. And put all of their time and energy into growing their business as quickly as possible.

Many sole proprietors start their business as a part-time job. And never gain the moment they need to grow their business huge.

Therefore, Edmonton accounting firm recommends that entrepreneurs incorporate right away. Because while it might be an expense to their business initially. There is many benefits that they can have while they are growing their business.

One of the most significant benefits that is nonmonetary. Is that incorporating their business can protect their personal assets. If a business owner ever gets sued while they are conducting their business.

If they are unincorporated, it is the business owner personally that is on the hock. This means their assets, their finances and even their investments are at risk. The matter how low risk they think their business might be.

Once they incorporate their business. The corporation holds that liability instead. Meaning that while the company is. Liability. It tax the directors that own shares in operation. And they are less likely to have their assets impacted by a lawsuit.

Since no company has a zero risk of getting sued. And if an entrepreneur has their family living in their family home for example. They can minimize having their family lives that home due to an unfortunate lawsuit. By incorporating their business.

This ability to shelter themselves from the liability, and let their company have that liability. Can be enough of reason for many entrepreneurs to incorporate their business. Even if there is an additional cost associated with incorporating.

Another benefit to incorporating. Is that it can help entrepreneurs protect their tradename. Many people assume that once they registered their tradename at a corporate registries. That protects their name legally.

Unfortunately this is not true. And registering the name only gives it a placeholder. But does not protect other companies from taking that name and a corporation under it. And then they would have the legal right to use that name. Over and above the entrepreneur that spent years building the name.

By understanding the benefits associated with incorporating their business. Entrepreneurs can make the decision along with their Edmonton accounting firm. On when they should incorporate. So that they can enjoy the benefits, and minimize their risk.

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When entrepreneurs do not understand the benefits of incorporating says Edmonton accounting firm. They often end up avoiding doing this. Because of the costs associated with incorporating the business.

Over and above the cost to complete the incorporation documents. There is also additional costs associated with doing a more complex corporate tax return. As well as additional reporting requirements. That will require their Edmonton accounting firm to do additional work.

And while these costs might have proprietor assume that it is more costly to incorporate their business. Then to continue running as a proprietor. This is not necessarily true.

In fact, sole proprietors should take into consideration. That as a proprietor, their business income gets taxed at a personal tax rate. And while that might not seem like important distinction.

It is extremely important to take note of. Because the highest personal tax rate in Alberta currently sits at 48%. Meanwhile, the tax rate for incorporated businesses is only 11%.

And while this does not mean that all proprietorships are going to pay 48%. Whatever tax bracket they are in, will be the personal tax rate they have to pay on their business income. Which is going to be more than 11%, no matter what tax bracket they fall into.

The next thing that proprietors should take into consideration. Is the amount of money that they need to make per year. In order to ensure that they are saving money. By incorporating their business.

Proprietors only need to make fifty thousand dollars in net income each year. In order to save money to their business by incorporating.

Therefore, if business owners are close to making that threshold. Or are at that amount of money they make each year. They should make an appointment with their Edmonton accounting firm sooner rather than later.

So that they can find out exactly what incorporating their business will look like. And how much money they can save each year.

In addition to being able to save money on taxes. It will also help entrepreneurs qualify for bank loans. Whether they need loans to purchase assets that will help them grow their business.

Or the need to buy a building, so that they can increase their capacity. They are not going to be likely to get approved for a loan as a sole proprietor.

Since financial institutions and banks typically will not lend money to sole proprietors. By incorporating their business before they need to apply for loans.

Can help ensure that once a business owner has a need for a loan. They do not have to stop the loan application in order to become incorporated. That might slow the process.

By understanding all of the different ways that incorporating their business can be a financial benefits. Entrepreneurs can make the decision on when to incorporate. So that they can continue growing their business.

Ultimately, the recommendation is for business owners to incorporate their business early. And use that momentum to build a strong, successful business.