Tips for Incorporation Canada

This article is about business tips for incorporation Canada. It is really important that you read this article if you are thinking of incorporating. I am going to tell you the pitfalls to avoid and the best practices to use for your incorporation. So, let’s get started.

Tips for Incorporation Canada – Number One:

Incorporate to save tax. Corporations pay a very low rate of tax of only fifteen and a half percent for the first $500,000 of profits. Contrast that to an individual who pays up to 46.4% in personal income taxes. So, that is a tax saving of 31% just by incorporating, that’s a lot of money, and that is precisely why this is amongst the most important ‘tips for incorporation Canada‘ .

Tip Number Two:

Be careful when choosing between provincial incorporation vs. federal incorporation. If you plan on doing business in Ontario or in your home province then provincial incorporation is fine. If you plan on doing business outside your home province then you should choose federal incorporation.

A couple of points to keep in mind; number one, Industry Canada requires all federal corporations to file an annual return; that costs money and takes time. This is not required if you are a provincial incorporation. Secondly, it’s more expensive to incorporate provincially than federally because the provincial fees for incorporation are higher.

Tip Number Three:

Make sure you have separate classes of shares in your incorporation documents. Why do you need separate classes of shares? Well, if there is more than one person who is the shareholder of the company, for example, you, your business partner, or your spouse, then separate classes of shares will allow the corporation to pay dividends in different amounts to each shareholder.

There may be a case or situation where one shareholder needs to get more money than the other by way of dividends and separate classes of shares allow for that flexibility. Separate classes of shares are also a great income splitting tool, so both shareholders pay less tax overall; and when it comes to tips for incorporation Canada, this is one you should not forget if you have a partner or more.

Tip Number Four:

Select the board of directors wisely. Remember that when you choose your board of directors they will have control over operations and strategy of your business. So, it is really important that you trust the board members that you are appointing. If it’s a very small business, perhaps it is going to be only you and your business partner who are board members.

Tips for Incorporating Company Canada – Number Five:

Credit or proof your assets with a holding company. What does that mean? I will make it simple. A holding company is a corporation and that corporation owns the shares of your operating company, your business, which is also a corporation. Whenever your operating business, your main business, has excess cash it should pay a dividend of that excess cash to the holding company.

The dividend is tax-free. What we have really done is transferred cash from the main company to the holding company. Why are we doing this? Well, if there is ever a lawsuit against the operating company it has very little cash because all the cash belongs to and is held by the holding company. It will reduce the risk of loss in the event of a lawsuit.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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