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Business Law
Why is it beneficial to Incorporate a
business?
You need not incorporate. A business can be run as a partnership or
sole proprietorship.
The benefit of having a corporation, however, are the following:
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Limited Liability, the shareholders of
the corporation are only liable to their original investment and
cannot be sued personally for any negligence caused by the
business. If the business goes bankrupt the shareholders' will not
be held personally liable.
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Your company may qualify for the
"small business deduction", if so, it will be taxed at about
one-half the regular rate on the first $200,000.00 of active
business income. Thus by preserving profits within the company an
individual can save substantial amount of tax than under a
proprietorship or partnership.
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Another advantage with a corporation
is income splitting and estate planning. You can have different
classes of shares, leaving yourself control of the business by
retaining the voting shares, and leaving the income generating or
capital appreciating shares to others in your family.
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Although a corporation provides many
benefits as a form of business structure, the courts are prepared
to " lift the corporate veil" in rare circumstances to hold the
shareholder's liable if it believes that the company has not been
run as a true corporation but is a vehicle for personal purposes.
It is therefore, very important to have your company prepare
proper shareholder and director resolutions on an annual basis. In
this respect it is advisable to consult a lawyer and have your
corporate documents properly prepared.
Once you have made the decision to
incorporate, you should seek appropriate advice regarding a number
of issues:
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Choosing a name and protecting that
name from use by others.
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Establishing an appropriate share
structure.
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Minimizing the risk of personal
liability for corporate obligations.
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Carrying on business outside of
British Columbia (BC).
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Using a Shareholder's Agreement to
prevent future disagreements among shareholders.
If you wish to incorporate your
business, please complete the incorporation form here.
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