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Powerful Corporate Structures

Empower Entrepreneurial Executives to Contract Strategically, Raise Public and Private Funds, Exit through Share and Asset Deals

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What Are The Main Advantages of Incorporating?

To begin, it’s good to know the two key benefits of incorporating:

Tax Advantages

The small business deduction

The small business deduction effectively lowers your corporate tax rate to about 12.5% in Ontario on the first $500,000 in each year. There are certain eligibility requirements for the small business deduction. First, it’s available on your active business income only (not income from passive investments) and second, it is only available to Canadian Controlled Private Corporations (raka "CCPCs"). This is only a deferral meaning that once you pull money out of your company it becomes your personal income and is taxed at the marginal tax rates on your T1 return. To the extent that you can leave the earnings in the company. To the extent that you can leave the earnings in the company, the deferral “lives” and you can use the additional money to grow and invest in your business at a lower tax rate.

The lifetime capital gains exemption

If you sell shares of your business down the road, you may be able to take more than one (1) million dollars off the table tax free. In other words, you will not have a to pay capital gains tax on the proceeds of the sale up to your lifetime exemption limit of approx. $1,016,836. There are eligibility requirements. Generally speaking, the exemption is available on sale of shares by an individual who has held the shares for at least 24 months. You can read about some of the other eligibility requirements here. Note that if you don’t use the entire exemption amount in one transaction, the balance can be carried forward.

Limited Liability

A corporation is considered a separate legal person and can enter into contracts, borrow money and own property. As the theory of limited liability goes, if your corporation is a party to a contract, the corporation alone should be liable for a breach of that contract. Or, if your corporation borrows money, it alone should be responsible to repay the loan. So, the concept of limited liability means that you are separate from your company and are not generally responsible for its debts, obligations or liabilities.
Keep in mind that limited liability is a general rule and there are definitely exceptions in the real world. For example, if your company borrows money from a bank, they usually require that you personally guarantee repayment of the loan. Or, if your company wants to lease commercial space, the landlord may ask that you personally guarantee payment of the rent. There are ways to minimize personal guarantees, but be aware that the limited liability protection of a corporation is not absolute. You should also know that directors of a company have personal responsibility in certain circumstances. Specifically, if your company owes money for taxes or employee deductions to the government, you as a director can be held personally liable for these amounts.

Additional Advantages

A corporation is considered a separate legal person and can enter into contracts, borrow money and own property. As the theory of limited liability goes, if your corporation is a party to a contract, the corporation alone should be liable for a breach of that contract. Or, if your corporation borrows money, it alone should be responsible to repay the loan. So, the concept of limited liability means that you are separate from your company and are not generally responsible for its debts, obligations or liabilities.
Along with the two major advantages, there are several other advantages that we have addressed in our blog article, “Top Ten Reasons to Incorporate in Ontario”, including:

Perpetual Existence

Advantages when Raising Capital

Easier to Include Multiple Owners

Tax Advantages when transferring Ownership

Avoiding Transitional Expenses Later

If you want to learn more about a corporation raising capital through debt or equity, check out this article.

About Levine Law

Real Toronto Corporate Law Firm

You may already be an established business or just starting a new venture, either way Matthew Levine has the know-how and business law experience you want in your corner to help you navigate your journey as an entrepreneurial executive.

As an owner / operator of a private business you are the head of your team. (Marketing, staffing, purchases, negotiations, sales, accounts receivable and the list goes on.) That is why we offer customized advise and support tailored to your business and responsive to your needs.

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Member and active in various professional associations:

House of Commons Chambre Des Communes Canada

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Entrepreneurs & Executives

Ready to Get Serious about Your Corporate Structure?

Term Sheets & Letters of Intent
Founders’ Agreements and Incorporations
Shareholder Agreements
Share Structure & Rights
Board-Level Advisory