7 Advantages of Small Business Incorporation

Aug 31, 2020

Owning a small business comes with a lot of perks, from the ability to make your own schedule to enjoying full control of the operations. Unfortunately, that also means shouldering much of the risk. As a sole proprietorship, your personal assets are on the line. 

According to the Government of Canada, only 42.4 percent of businesses that began with one to four employees survived in 10 years. You can increase your own business’s survival rate by learning about incorporation. 

Read on to learn how to mitigate risk and grow your Ontario business through small business incorporation! 

1. Protection From Creditors

One of the most important aspects of incorporation is that you’re protecting your own personal assets. If you just begin your business but aren’t able to pay back a loan, your own property is at risk, and your credit score will take a nosedive. On the other hand, incorporating your business will separate your personal income from the income your business has made. 

The property you own that’s unrelated to the business, such as your home and personal car, won’t be touched by collection agencies unless you’ve made a personal guarantee.

2. Protection From Lawsuits

When you own a sole proprietorship, you’re personally liable if a customer decides to sue you in court. They could become injured by your equipment, lose money from an appointment you missed, or felt that the services or products you provided were subpar. If they sue you for any reason, your property and income are on the line. 

On the other hand, you don’t need to worry about this if you incorporate your business into a public or private corporation. Your personal property and bank account are protected from litigation. The exception to this, however, is negligence.

3. Tax and Money Benefits

Incorporating your business can save you money in the long run. You’ll also enjoy some tax benefits. Although it’s important to speak with a CPA about tax deductions to avoid getting audited, you can typically enjoy tax deductions such as travel expenses related to business as well as deducting business losses.

You’ll also find that incorporating lends your business some authority. This can make it easier to apply for loans and borrowing money from lenders. Investors also like to see that a company has been incorporated because they can more easily obtain share capital in the corporation in exchange for their investment.  

4. Enhanced Reputation

Since incorporation helps build your authority and legitimacy to borrowers and investors, you’ll also enjoy the same enhanced reputation from customers. You’ll appear more professional to new customers compared to competitors, as people want to choose companies that are a “safe bet.”

If there are businesses in your industry and local area that aren’t incorporated, you can use this as a way to differentiate your business through instant credibility. This is especially effective if you’re getting started in a new area or just ramping up your business. 

5. Brand Protection

The most common way to differentiate your business from others is through your branding. Your logo, voice, color palette, typography, imagery, and more all go into your brand and create a personality that customers relate to. Without a memorable brand, you won’t be attracting the customers you desire. 

By incorporating your business, you’ll be able to protect your brand from being used by other businesses. Sole proprietorships don’t have the same level of name protection. 

6. Unlimited Lifespan

Selling a corporation is easier than selling a sole proprietorship because it exists as its own entity. Even if all the shareholders pass away, it will continue to exist afterward. By incorporating your business, you’re ensuring its future and your own legacy. 

7. Easy Transfer

It’s hard to transfer ownership of sole proprietorships because the line between your personal assets and income and the business is hard to define. This is the same for partnerships. On the other hand, this is very clear with incorporated businesses, making it far easier to transfer its ownership and funds. 

You’ll also be able to benefit from the ability to have multiple shareholders. Public corporations have the abilities to sell shares to the public as long as they’re in compliance with the Ontario Securities Act regulations.

The Benefits of Small Business Incorporation 

As you can see, there are numerous benefits when it comes to small business incorporation. You’ll be doing more paperwork and may need to file an additional tax return for the corporation, but the benefits can often be worth it.

Ready to begin incorporating your Ontario business online? Get started with Opstart today, and you’ll be emailed your Certificate of Incorporation in less than two business hours! 



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