This article are provided for information purposes only, and are not intended as legal advice.


Incorporated business vs unincorporated business

March 2nd, 2009

You have decided to buy a business or start a business and you now have to decide who will own the business.  There are many advantages and disadvantages of being incorporated vs unincorporated

 

incorporation – advantages

  • limited liability
  • credit proofing
  • ability to have other family members own company
  • possibly lower tax rate
  • ability to defer income taxes
  • ability to chose your own fiscal year end which may or may not co-incide with the calendar year
  • may be able to sell the shares of the business and may be eligible for the $750,000 capital gain exemption in Canada.¬† Please note that you must meet specific criteria to be eligible to use this exemption

 

incorporation – disadvantages

  • more expensive to maintain, must keep proper accounting records
  • must maintain shareholder minutes and resolutions
  • you may end up with multiple companies in order to creditor proof and structuring your affairs for tax purposes making it considerably more complex to understand and operate

 

unincorporated business - advantages

  • simpler to operate
  • less costly, report your revenue and expenses in your personal tax return

 

unincorporated business - disadvantages

  • unlimited liability
  • cannot have family member own part of the business unless you have created a partnership or joint venture
  • unable to defer taxes
  • must file tax returns based on the calendar year

Filed under: Starting a business — Gary Landa @ 11:00 am


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