Vancouver CPA | When Businesses Should Incorporate
If business is did not incorporate when they first started out, Vancouver CPA says they may not know when right time to incorporate their business would be. And if they hold off on incorporating, they could be putting their business at significant disadvantages.
One of the reasons why business owners do not want to incorporate right away. Is because there is additional reporting requirements. That will require them hiring a Vancouver CPA. And that additional cost can be more money than a business owner can afford early on in their business.
However, while there is a cost associated with additional reporting requirements. Because they will have to prepare a corporate year-end. And things like tax plans, and financial statements. There are also other benefits to incorporating. That business owners should be aware of.
One reason why business owners should incorporate. Is because incorporating protects the business owners personal assets. Incorporating gives a business owner limited liability. Which means if a business owner gets sued while conducting their business, is the company that gets sued, not the owner directly.
Even businesses that are extremely low risk such as graphic designers or web designers. Still run the risk of being sued while conducting their business. But if they have a higher risk business such as a plumber or an electrician. It is even more important for these businesses to be incorporated.
If a business owner has personal assets such as a family home that they live in with their spouse and children. Or if they have assets such as a vehicle that they drive to work in. Limiting their liability by incorporating is an extremely good idea. So if they get sued, they do not put their personal assets at risk.
If sole proprietor gets sued, they get sued personally, and all of their assets are at risk. Especially if they lose the lawsuit. So business owners should protect themselves simply by becoming incorporated. As well as protect their family, by not putting their family home at risk.
Another thing that they can protect when they incorporate is their tradename. Even if business owners have registered their tradename, registering it does not protected. Registering it is simply ask as a placeholder. But anyone else can incorporate using that tradename.
So if business owners want to ensure that they are legally protecting the name that they are building by growing their business. They should incorporates. Which will ensure that they are the only ones who are able to use that tradename.
Another way that business owners can benefit from incorporating. Is by being eligible to receive business loans. If they apply for a business loan, and they are not incorporated. Banks will not issue those loans to sole proprietors.
Therefore, if business owners ever will need or want to have a business loan. Either to buy a building, do leasehold improvements, or purchase assets. They should incorporate well in advance. Of ever needing to apply for a loan in the first place.
There are so many benefits to incorporating. That business owners should get all of the facts from their Vancouver CPA. And then make the decision that is most beneficial for their business.
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many businesses hold off on incorporating their business says Vancouver CPA. The reason that they hold off on incorporating, is because they perceive the costs to be more prohibitive than the benefits.
And while there can be additional costs associated with incorporating their business. They should understand what the benefits are. Because when the benefits outweigh the costs. It will make more sense to incorporate.
Many business owners think that they have to be operating a large business in order to incorporates. And they think that they need to be making a quarter of a million or half a million dollars a year. Before it will be beneficial to incorporate their business.
However, the threshold in which it makes sense to incorporate is a lot lower than that. With businesses only having to invoice fifty thousand dollars in one year. In order to benefit from incorporating financially.
When businesses are sole proprietors, their business will get taxed at the personal tax rate. Which in British Columbia, tops out at 53.5 percent. This is a significant amount of taxes that a business is potentially getting taxed. Especially if they are close to or at the high-end of the personal tax rate.
However, the corporate tax rate in Canada is only 11%. So the moment a business incorporates. They can save up to 42% in taxes. Which can be a lot of money, depending on how much money a business owner is making in their business.
In fact, a business only needs to be making fifty thousand dollars in income. To benefit financially from incorporating their business. Because even though they will have to pay additional accounting requirements.
They will end up paying less money altogether. By paying lower taxes, even though they are paying a higher accounting bill with their Vancouver CPA. This tax savings can be significant. And can allow business owners to use that saved money to put back into their business.
Either by hiring more staff, purchasing assets. Or even putting that money into marketing and advertising. So that they can grow their business even larger. And become even more successful. This is possible only once a business incorporates. Which is why business owners should get the facts.
And while enjoying a lower tax rates, and saving money is great. That is not the only benefits to incorporating the business. Businesses can benefit by incorporating. Because it gives them to liability in case they get sued, it protects their tradename.
Incorporating also allows them to qualify for business loans their financial institution. It can help them get hired onto a wider variety of job sites. Because they will have an easier time qualifying for a WCB number. As well as allow them onto job sites that are not open to sole proprietors.
In fact, there are so many benefits to incorporation. That before a business owner decides that it is not the right time. Or that they are going to wait until their business is larger in order to incorporate.
They should make an appointment with their Vancouver CPA. In order to find out all of the facts. And how it relates to their specific circumstances on whether they should incorporates or not.