Whether you are a small business owner looking to incorporate your company or someone who has just started to gain momentum in the market, there are a few things you need to know about business incorporation. An entrepreneur has to think well ahead of his time. No one starts a business to be on the same level. So, a business owner should always have a plan so it will be easy to incorporate the company when the time is due.
When can you incorporate the business?
You cannot decide without giving it a thought. If that’s the case, you should probably be asking a few questions yourself, which will help you arrive at a point. They are:
- How much revenue the business makes in a financial year?
- What are your future goals?
- How your personal tax situation may change?
- What is the type of your business?
- What is the potential legal liability within the firm?
Providing yourself the time to think about these scenarios will help you understand if you are doing the right thing with incorporation.
While growing, one cannot say there won’t be any pitfalls in business. Likewise, there are advantages and disadvantages to incorporating a business.
Perks of incorporating a business
Limited Liability – As a sole proprietor of the company, you assume the liability of the company. So, your personal assets like your home or car can be seized to pay your company’s debts. But with a corporation, your liability is limited. It means you can rest assured that when it comes to any legal issues with the company, only the assets associated with the company will be at risk.
Your company can exist beyond your lifetime: When incorporated, your company exists as a separate entity. It is beneficial in many ways. If you are a sole proprietor of the company, your company’s lifetime depends on your life span. However, after it becomes a corporation, it can exist indefinitely. It will benefit you even when a shareholder passes away, or you wish to sell the corporation.
Deferral from taxes: Remember, personal taxes are lower than individual taxes. While operating your business as a corporation, you will enjoy the benefit of tax deferral and save money.
Small Business Tax Deduction: 10.5% of the first $500,000 taxable income is applied under small business deduction. It will be a helpful tax break for your corporation.
Dividends and Income splitting: One of the most significant advantages of incorporating a small business is you can pay yourself in dividends instead of a salary from the corporation. It will help you lower the tax burden further. Also, by income splitting, you can redistribute the income to shareholders. Since shareholders can be anyone, including your family members, it will again be beneficial to you lowering your tax rates.
Although incorporation benefits you in several ways, it will cost you a fortune. In addition, you have to deal with the increasing operational cost as the administrative burden increases.
Business incorporation is a significant step in taking your business to the next level. Always ensure you meet the right lawyer and professionals before taking this step. And websites like ThreeBestRated® can help you reach out to the best professionals.