A business lawyer can discuss the benefits of why you should incorporate your business.
My father was a grocer and he was always a sole proprietor. He did very well and it worked for him. He never bothered to consider the benefits of incorporating. Even when he bought a grocery store for my brother and revenues doubled, there was never any discussion around our home on whether we should incorporate. If you want to learn more about why you should incorporate your business – read on.
Times have changed and I now believe that my father should have considered incorporating for a variety of reasons, like:
- The lifetime capital gains exemption on sale of an active business (up to $800,000 per individual shareholder);
- Protecting personal assets from creditors and personal injury claims;
- Getting the benefit of a lower corporate tax rate, income splitting, dividends, and retained earnings;
- Estate & Succession planning – ie. a trust to own holdco – holdco to own the realty and opco.
Easy to say, however, there are many things to consider on whether or not to incorporate. For example, if you own a rental property that is considered “passive income” and therefore incorporating does not entitle you to a lifetime capital gains exemption. Only “ongoing concerns” are entitled, like retail or sales business, manufacturing – something that involves doing something to earn money rather than sitting back and waiting for it to collect in your bank. Of course, I am using a simplistic analogy. However, if you had at least 5 employees in a rental property business, then all of a sudden, it is no longer considered “passive income” and you would be qualified for a lifetime capital gains exemption in the event of sale of shares of the corporation.