To Incorporate or Not

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I think this is by far the most common question I have been asked as an accountant.

A good accountant will usually ask many questions before they can provide a definitive advice. My aim is not to give you a definitive advice; rather, the aim is to take you through the thought process of an effective accountant.

A competent accountant will ask questions around the following five dimensions to help you decide to incorporate or keep operating as a sole proprietor.

  1. Current and future tax shelter.
  2. Legal liability protection.
  3. Financing options.
  4. Flexibility in changing the ownership structure. 
  5. Future Plans.

The questions from these 5 dimensions will normally conclude in the following two tables.

Think of Incorporating if
  1. You’re more than 2 partners.
  2. You’re making > $80K in profits.
  3. You want to mitigate exposure to liabilities.
  4. You need to tax shelter for residual income.
  5. You want to raise complex equity funding or IPO.
  6. It is a part of your tax planning.
  7. You want to use Lifetime Capital Gains Exemption.
  8. You need to reserve Intellectual Property.
  9. You want to claim SR&ED credits for taxes.
  10. You want to reserve business name nationwide.
Don't Incorporate if
  1. Your profession does not allow.
  2. You’re making < $80,000 in profits.
  3. You aren’t exposed to significant liabilities.
  4. You have personal loss carry forwards to claim.
  5. You have no capital gains to shelter from future tax.
  6. Your income does not qualify as Active Business Income.
  7. You’re not leaving residual income in the business.
  8. You cannot afford to maintain the cost of corporation.
  9. You have declared bankruptcy in the last 10 years .
  10. You’re not sure about it.

Want more information? Do not hesitate to contact us. First consultation are always complimentary.