Canada is fast becoming a good soil for businesses looking to get the best tax deals. Now, incorporating your business is both a big deal and a time-consuming process. You shouldn’t decide to do it without careful consideration. And there’s the question of if there are also attached drawbacks, especially when considering Canada. It’s a question many business owners ask.
As you’ve guessed, there are a few things you should consider before you go on with incorporating your business in Canada. And here are a few disadvantages of incorporating in Canada.
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Costs of Incorporation
Because establishing a corporation is more difficult than establishing a sole proprietorship or a partnership, the associated expenses are, of course, higher.
Even if you may utilize the government’s website for self-service for as low as $200, it is still suggested that you work with a lawyer to ensure that your organization is established properly.
The normal fee for a simple incorporation is about $1,000, but the procedure may easily run upwards of $3,500.
Increased Accounting Costs
Because your company is now a distinct entity in the eyes of the law, you will be required to submit two tax documents: one for your personal income and another for your company.
The cost of engaging a professional accountant to prepare your tax return for self-employment ranges from $150 to $350, depending on how complicated your finances are.
When compared, the cost of paying taxes for a corporation might reach up to $2,500.
Additionally, companies are ineligible for personal tax credits; this can influence the total amount of taxes you are responsible for.
Increased Administrative Work
The upkeep of a firm necessitates a significant amount of effort in the administrative arena.
For instance, the documents of your company, which must be kept up to date and comprise a minute book, share register, securities registration, articles of amendment, and plenty more, must be accurate.
In addition, you will be required to create financial statements, choose an auditor to audit the corporation’s financial accounts, and submit an annual return, amongst other responsibilities.
To maintain your corporation’s good status, you will need to complete all of this documentation. If you do not comply with this requirement, you may be subject to fines and costs, lose the protection you have against personal responsibility, or even have your company shut down.
Risks of Liability
Even if you incorporate your company, you are not entirely shielded from legal responsibility.
For instance, if your firm does not have enough assets to acquire debt financing, lending institutions often request that the business owner guarantee the loan for the corporation to be eligible for the financing.
This means that you and your personal assets would still be on the hook if your company cannot meet its repayment obligations, rendering your corporation’s “limited liability” null and void. Also, you could lose both your business and your personal assets.
The decision to incorporate your company may throw up many doors and bring many benefits; however, depending on the stage your company is in or its income, the disadvantages may exceed the advantages.