Don’t just incorporate your business anywhere…
In a previous article, we’ve discussed when a person should incorporate. However, once you do an incorporation, it’s important to consider a number of factors. Most incorporations done online do the basic minimum to setup a company. They do a name search, they get the articles of incorporation, etc. However there are some important things that are missed that have implications on how you get paid.
Here are some other considerations:
- Incorporations done online generally don’t include share certificates to be setup, unless you pay extra. This is important because without share certificates, you can’t declare dividends. Dividends are a critical component that is available to owners to compensate themselves which can minimize taxes.
- Incorporating a company should consider the share structure. Generally speaking, the owner-operator is the primary shareholder. But often other family members or other individuals can be setup with minority shareholdings. This can also be a method of allowing for distributions from the company which can reduce taxes.
- Incorporations done online are often setup to issue only one class of shares. If a new shareholder is going to be introduced, then new shares may need to be issued. However, very often there is less flexibility to handle such situations.
- Consider your yearend. Online services won’t help you select it. So you need to think about it. From a tax perspective, we try to advise clients to choose a July yearend. It allows for the payment of bonuses that can be distributed later, thereby reducing corporate taxes. However, you need to choose a yearend that falls within one year of your incorporation. If you don’t do it at the right time, you may incur unnecessary costs.
- If you’re converting an existing business into a corporation, then there are some other considerations, like the value of assets that are being brought over. Assets brought over this way could potentially be taken out tax-free later on, if it’s set up properly.
- Tax accounts aren’t setup and they need to be set up properly. When you start your business, GST/HST numbers, payroll numbers and other tax accounts aren’t going to be setup automatically for you. Either you can or if you’re not sure how, an accountant can help you with that as well.
- It cannot be stressed enough about the setup of an HST account, because in Ontario, we are allowed to claim 13% Input Tax Credit (ITC) for business usage. Naturally, CRA does not treat it lightly, so the importance of when to open up the account and making sure the reporting period is most advantageous to you should be considered.
- Most Ontario small businesses only need to incorporate an Ontario corporation, but some have inadvertently incorporated a Canadian corporation. Usually it’s not necessary, but sometimes it is advantageous as Canadian incorporated businesses have highly administration costs with annual filings with Industry Canada.
There are other considerations to incorporating online. It’s important however to get some advice to determine if that suits both your present and future plans.