When Should You Incorporate Your Business in Canada?

Incorporation is not automatically better

Starting a corporation can make sense as your business grows, but there is no single revenue number that means it is time to incorporate.

The right decision depends on your profits, how much money you need personally, your plans for the business, and whether the additional accounting and administrative costs make sense.

For some owners, remaining a sole proprietor is simpler. For others, incorporating can create useful planning opportunities.

You are earning more than you need personally

One of the biggest reasons business owners consider incorporating is the ability to leave some profits inside the company.

If you need to withdraw nearly everything the business earns to cover personal expenses, the potential tax benefits of incorporating may be limited.

If the business consistently earns more than you need personally, a corporation may give you more flexibility over when and how income is paid to you.

Your business is becoming more established

Incorporation may also make sense when your business begins taking on larger contracts, hiring employees, purchasing significant assets, or working with new partners.

A corporation is a separate legal entity, which can provide additional separation between you and the business. However, incorporation does not remove every form of personal liability.

There are additional costs to consider

Corporations generally require more administration than sole proprietorships.

This can include separate corporate tax returns, annual filings, payroll or dividend planning, bookkeeping requirements, and maintaining proper corporate records.

Those additional costs should be weighed against the potential benefits.

Make the decision based on your situation

The best time to incorporate is different for every business.

Before making the change, it helps to compare what your taxes and ongoing costs could look like under both structures.

TH Financial can help you review your business, understand the tax implications, and determine whether incorporating makes sense for where your business is today.