Incorporation

A corporation is a form of business ownership that has an existence of its own, separate from its owners. For this reason, corporations are considered to be more permanent than other forms of business ownership. Corporations can be identified by the inclusion of the words: LIMITED, INCORPORATED, or CORPORATION (or appropriate abbreviations Ltd, Inc.) after the company name. Because a corporation has a legal existence of its own, it will not stop operating when the people running it quit, retire or die.

Corporations are established to conduct business, earn profits, and limit the personal liability of their owners. The owners are only liable for their investment in the business. If the business were to lose money they would not have to pay out of their personal belongings. You may incorporate your company federally or provincially.

It's cheaper to do so provincially, but that may limit the ways you can do business in other provinces. In order to incorporate, a business must apply to the provincial or federal government for a charter. This charter grants the business permission to operate and raise capital by selling shares to investors (commonly referred to as shareholders). The investors are the owners of the business.

There are two kinds of business corporations - private and public. A private corporation or company is one in which shares can't be sold to the public, shares can be transferred only with the permission of the shareholders. The shares of a public company can be sold through the stock exchange to anyone who wants to buy them. Privately owned corporations give their owners more control, but this also means there is less capital available to use.

ADVANTAGES:

Ease of raising capital.

Ease to expansion.

Limited liability for all owners, that means you can't be held personally liable for debts if your company doesn't succeed unless you have personally guaranteed the obligations of the corporation. You can lose only your investment.

Possible tax advantages depending on the type of capital. Owning a private company makes you eligible for certain tax breaks.

Opportunity to choose a fiscal year-end that is most convenient for the business.

Continuation of business, regardless of the ills that might befall the owners or other things what happens to individual owners. A corporation can only be ended when its charter expires, its shareholders elect to give its charter up or bankruptcy is declared.

DISADVANTAGES:

High start-up costs. You have to pay an incorporation fee to the government, do a name search and you usually have to hire a lawyer.

Strict government regulations.

Accurate accounting and meeting records required. You'll be loaded down with paperwork which various governments oblige you to fill out.

Double taxation (profits of the business are taxed, and shareholders are also taxed based on their income from the business).

If net income of your business is to low, you may actually pay more in taxes than you would if you were simply filing your personal income tax (or if you have losses, these will not be deductible against other sources of your income).

Shareholders are by low, entitled to know the annual income and debts of a company. If this information falls into the hands of competitors, they may use it to their advantage.

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