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