Incorporated Business

Looking up
in a hot air balloon

Incorporation is the act of turning a business into a limited liability company. The articles of incorporation are a legal document establishing corporation's purpose and structure.

It is important to consult with a good accountant and lawyer when incorporating a business as they will give advice so that the articles of incorporation are appropriate both at first and in many years.

The annual costs of running a corporation are higher than a sole proprietorship.

Taxation of Personal Income

The owner now has the choice of taking money out either as salary or as dividends based on his shareholding.

Income taken as a salary is taxed at a higher rate than salary taken as dividends. This is because the corporation has already paid taxes on the profit.

Link to Tables of Personal and Corporate Income Tax Rates

Opinions differ as to which is better. Many business people have chosen to take dividends so that they do not have to pay into CPP as they did not believe that it would be there for them. An article in June 2006 states “Review Finds Canada Pension Plan Is Financially Sound”.

The danger is that the money that would have been paid into the CPP plan is not invested elsewhere in retirement savings.

Canada Geese in our
bird sanctuary

Bald Eagle flying high

Risks

The risks for the owner(s) of a corporation are similar to those facing a sole proprietor, a serious injury, heart attack, stroke or cancer.

As the company grows and hires employees, the risks change. The right kind of employee needs to be recruited, retained and rewarded.

Insurance Solutions

Disability, critical illness and life insurance continue to play a big part in the safety net for the owner of the company.

The business owner needs to review his needs every few years with a good insurance broker and/or financial planner who work alongside his accountant and lawyer.

Recruiting and retaining good employees can be done through a group employee benefits plan.

The employer first needs to be certain of reasons for implementing a plan. Is it to recruit, retain or reward the best people? How much can the business afford? What should be covered?

Chris and Flick on
"On Ne Sait Jamais"
our boat, at the dock