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July 2022 - Legal Update - Benefits of Incorporation

July 2022 - Legal Update - Benefits of Incorporation

When considering starting a business and incorporating there are several advantages. Owning a business in a simple partnership or sole proprietorship is important for branding and advertising. It is a requirement under the Ontario Business Corporations Act that business owners register their business names if they are advertising to the public. While a partnership or sole proprietorship can be a quick way to get your business off the ground, there are several reasons why incorporation might be the better approach. An incorporated business can exist indefinitely even after the original owner and incorporator have passed. This is because corporations are their own legal entity and do not rely on the person who created it to survive. As owners decease, the corporation can carry on its functions through its appointed Directors and Officers. This opens avenues for estate planning such as dual wills for corporate assets and shares.
 
A corporation also serves as protection against personal liability. Because a corporation is its own legal entity it holds legal standing like any other ordinary person. This means the corporation is responsible for its own debts and liabilities. This stands in contrast with a sole proprietorship, where the owner of the business is personally liable for the contracts and services performed. Corporations can also maintain separate insurance and credit. However, there are exceptions to corporate indemnification and limitation of liability. If you have acted negligently or fraudulently, or when you have signed as a personal guarantor for the corporation, personal liability may result. Please seek legal advice when incorporating.
 
A corporation may also attract investors more easily. This is due to the lack of personal liability investors face. Investors are usually most interested in increasing their original investment through shareholder equity. This will allow investors to sell or transfer shares. A shareholder agreement or the terms of the articles of incorporation may restrict such options, so it is important to seek legal advice if you have questions regarding investments or share transfers.
 
Further benefits to corporations may include tax breaks, government grants, expenditure planning, or section 85 rollovers of existing assets. If you are interested in knowing whether incorporating will have a financial advantage for you, accounting advice is strongly recommended.
 
As you now know, there are many benefits to incorporating your business in Ontario. Liddiard Law Professional Corporation is more than happy to assist. We are a phone call and a NUANS name reservation away from incorporating your dream business.
 

 

 Brock A. Buckley, LLB
 Articling Candidate, Corporate, Real Estate
 Commissioner of Oaths
 Office: (905) 374-1617 ext 304