Vancouver CPA | When Should Businesses Incorporate
The decision on when businesses should incorporate does not need to be as complex as many business owners think it is according to Vancouver CPA. Because while some business owners think that there are no benefits until they are a much larger company. This is not the case.
In fact, very small businesses can benefit from incorporation. And when they understand all of the benefits. They can make the right decision on when is right for them to incorporate.
One of the first things that business owners should understand, is that incorporating can protects them in case they get sued. Because incorporating gives a business owner limited liability.
For businesses like plumbers and electricians, this can be very important. Because they could cause damage through conducting their business. But even low risk businesses like graphic designer web design. Can when the risk of getting sued through the course of conducting their business.
When they are not incorporated, if a business owner gets sued. It is their personal assets such as their vehicles or home. That are at risk if they get sued. Therefore, if business owners want to protect their assets. They should incorporate their business early on.
However, protecting themselves and their personal assets is not the only thing that they can protect by incorporating. It can also protect their legal tradename as well. While many business owners assume that by registering their tradename legally protects it.
This is not the case. The only thing that legally protect their tradename is incorporating that name. Registering their tradename simply acts as a placeholder. Therefore, once business owners incorporate, they will be able to ensure nobody else can use the name that they been working hard to create.
In addition to protecting themselves and their name. Vancouver CPA says that incorporating can help them get bank loans that they may need. In order to grow their business. Because banks and other financial institutions. Typically will not loan money to sole proprietors.
Therefore, if business owners are ever going to need or want alone in order to help them grow their business. Such as buying a building, leasehold improvements or even purchasing an asset they need to grow. They will need to be incorporated in order to qualify for the loan.
And while these are many great reasons why they should incorporate. Vancouver CPA says and also is important to help them land as many jobs as possible. Allow them to walk onto as many job sites as they can.
For example, if business owners do not have their own WCB number, they may not be able to go onto certain job sites. And while the reason why they cannot get a WCB number, is because WCB thinks that a subcontractor can be covered under the prime contractor.
Most prime contractors do not want to extend their coverage to anyone else. In fears of increasing their premiums if there is a claim. Therefore, by incorporating, business owners can get that necessary WCB number. To allow them to take many jobs in their business.
It can be so beneficial for small businesses to incorporate. That without incorporating, business owners may put their business at risk. Which is why Vancouver CPA recommends incorporating as quickly as possible.
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Business owners who put off incorporating their business, may cost themselves more taxes than they should says Vancouver CPA. Because if businesses operate as a proprietor, they will pay the personal tax rate on their business income.
That might not sound like a bad thing at first. Until business owners realize that the corporate tax rate in Canada is 11%. While the highest personal tax rate in British Columbia is currently over 50%.
And while not every business owner is going to be at the highest tax bracket. The might be much higher once they include their business income information on their tax return.
And even if they are not paying anywhere close to the highest personal tax rate. They will be paying more than 11%, and that is money that they are paying the government. That could be kept in their business to help them succeed.
Whether they save money on that tax and use it to pay bills, hire more staff. Or even purchase and assets, or use it on increasing their marketing. Says benefits to their business that they would not have if they remained a sole proprietor.
This is why Vancouver CPA recommends that even small businesses incorporate sooner rather than later. In order to avoid paying additional taxes that they do not need to.
And while some businesses understand that they will pay lower taxes as a corporation. They often think that they need to be a large business making quarter of a million or half a million dollars in profit each year. Before they can gain those benefits.
However, this assumption is not true. Even small businesses can benefit financially from incorporating. By paying a lower amount in taxes as soon as they incorporate. In fact, the general rule that Vancouver CPA goes by. Is if the business is invoicing around fifty thousand dollars each year.
They will benefit from the lower tax that they will enjoy as a corporation. Therefore, even small businesses and businesses that only have the business owner as the only employee. Can still benefit from the financial savings from incorporating their business.
In addition to that, business owners may not realize that as a sole proprietor, they will have to pay the employee and employer portion of CPP. If they are not aware of that, they could get hit with an additional five thousand dollar tax bill at the end of the year.
The only way around that, is by incorporating, and avoiding having to pay additional five thousand dollars in taxes to the government. Once business owners understand all of the financial benefits of incorporation. They can make the right decision for their business. And save that money, and spend it where would be most beneficial in their business.