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