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

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Vancouver CPA | Should I Incorporate

 

Often, when business owners are first starting out they are running so proprietors according to Vancouver CPA. However this is not necessarily the most beneficial thing to do. But many business owners do not know when the right time to incorporate their business would be.

Many business owners hesitate to incorporate their business. Because they think that it is going to be far more expensive for them to incorporate. Because of all of the accounting requirements they have. And they do not want to have to pay a Vancouver CPA to do all of their filing because of the cost.

And while it is true, Inc. businesses have a lot more requirements. Such as double ended accounting that requires the creation of financial statements such as balance sheets and income statements. But also the creation of T4 slips and T5 slips. As well as some significant tax planning on behalf of the business owner.

While this can be significantly more expensive. Because sole proprietors only have a single ended accounting requirement. And they can file along with their personal taxes. Business owners should consider the tax rates when making this decision.

The highest personal tax rate in Alberta is currently 48%. And businesses that are sole proprietors must file their taxes personally. Which means their business is paying up to 48% in the tax rate. However, for incorporated businesses, the tax rate is only 11%. Which means businesses can save a lot of taxes by incorporating.

Therefore, Vancouver CPA says business owners should consider incorporating. Because while it will be more expensive to do the accounting for the business. It will be cheaper tax rate in the long run. And the general rule is that once a business is making fifty thousand dollars in income per year.

Incorporation becomes less expensive, even with the increased accounting requirements. Because the fewer taxes that they will end up paying. Will make incorporation the less expensive option.However, expense is not the only advantage of incorporation.

One benefit that many business owners are not aware of. Is that incorporating can actually protect a business owner’s personal assets. The reason why is because incorporating gives business owners limited liability. Even extremely low risk businesses carry an inherent risk.

And if entrepreneurs get sued while conducting their business, if they are incorporated. It is the company that gets sued and not to the business owner directly. This does not mean that they cannot be affected if they get sued. But it makes it more difficult for people to sue the directors of the corporation.

And if business owners have assets such as buildings, or even a family home or car. If they have a proprietorship and they get sued. Those assets could be put at risk. So if a business owner wants to protect their home, assets and family. They should incorporate their business.

While incorporation can be a complex topic. Business owners who have questions about when the right time to incorporate for them would be. Should make an appointment with Vancouver CPA, and discuss the pros and cons for their specific circumstances.

When do you need a Vancouver CPA?

When smaller businesses are starting out, Vancouver CPA says it is very common for them to remain on incorporated. And then make the decision as they grow larger. However, while this might be a strategy they implement.

This is because they do not want to pay additional fees associated with accounting for a corporation. But this does not take into consideration all of the other benefits of incorporation. Business owners should understand what the benefits of incorporation are. When they make their decision to incorporate.

One benefit of incorporating that many people may not realize. Is that it protects a businesses tradename. This is even if a business owner has gone to corporate registries in order to register their tradename. Because registering it with a registries office. Is merely a placeholder for the name.

And if another business incorporates, they are able to incorporate using any name that has been registered. Because registering it does not protect it. Therefore, if business owners want to ensure that no other business can use that name. Should incorporate their business.

Not only does incorporating give business owners the legal right to their name. But Vancouver CPA also says that incorporating can help people get business loans as well. This is because many banks will not give loans to businesses that are not incorporated.

Therefore, if a business owner is ever going to want or will ever need to borrow money from a bank. Whether it is to purchase a building, do leaseholder improvements, or purchase assets. They should be incorporated well before they ever need to approach a bank.

Another reason why it is beneficial for businesses to incorporate. If they are independent contractors, because some companies will refuse to hire sole proprietors as contractors. Which can be extremely limiting to these business owners, who may not be able to work on many job sites because of this.

The reason why larger companies will not hire proprietors as independent contractors. Because there is a risk that Canada revenue agency will consider those proprietors to be employees of the company. And if they do determine that to be the case.

The company will then payroll remittances from the first day that contractor was hired. This is a huge risk for the company to take. And can end up with them owing thousands of extra dollars to the government. That they could have avoided paying, if they only hired a contractor that was incorporated.

Therefore, in order to completely mitigate this risk. Companies often have a policy never to hire unincorporated contractors on their jobsite. So if business owners want to be able to take the vast majority of jobs that they are offered. They should incorporate, so that they do not have to refuse jobs.

While this can be a very complex issue. Any businesses that have not yet incorporated. But have questions should contact their Vancouver CPA to have a discussion about if they should incorporate. And if so, they can get started right away.