Should You Register or Incorporate Your Business?

Every business starts somewhere, and that “somewhere” is often small. In Canada alone, 97.9% of employer businesses classify themselves as such, with thousands of new ones added to the mix every year.

Starting a business has only become further popularized by freelance culture and the gig economy. If you want to be your own boss and build something from the ground up, the time is now and the resources available to help you in doing so are many.

As you begin to dive into the nitty-gritty details of business ownership and management, a consideration you’ll come up against time and time again is incorporation. Poll a room and the opinions will vary, but keep in mind the following when deciding whether you should register or incorporate your business in Canada.

Registering Your Small Business in Canada

There are essentially two types of processes to consider when venturing out on your small business journey: incorporation and registration.

Registering your business — as a sole proprietorship or partnership — serves as an extension of you as the individual. The regulatory and tax implications are fairly minimal because, as the owner, you are choosing to absorb any responsibilities associated with debts and pay taxes via your personal tax return. You also then become liable in the event that you’re faced with client-based legal action.

One thing to be conscious of when it comes to registration is that you will need to register your business in each province or territory you plan to conduct business in (“doing business” is typically defined by having employees, facilities, or offices in the area).

Incorporating Your Small Business in Canada

With incorporation, you are essentially separated as a shareholder from the legal entity that becomes the business. The business operates outside of you as the owner and key stakeholder, making it subject to corporate-level taxes and able to operate under limited liability.

When incorporating, you’ll need to decide between federal and provincial incorporation. Federal incorporation is more costly, but it can further bolster your credibility and provide you with added name protection.

How to Choose What’s Best for Your Small Business

In deciding between registering or incorporating your small business in Canada, it’s important to take into consideration your long term plans. If you’re planning to grow the business exponentially in the upcoming year, to the point where you’re bringing on employees and opening office spaces, incorporation is probably the way to go from the start.

However, if you plan on being the sole driver of your efforts for the foreseeable future and have found it easy enough to bring new clients on board without the credibility incorporation can bring, there’s no harm in opting for sole proprietorship. As your business grows, you can always reevaluate and incorporate at a later date.

Take the time to consult with fellow small business owners and loop in an accountant or lawyer if possible. The more information you have to work with, the better you can make a decision based on what makes the most sense for your business, and your business alone.

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