Corporation (Limited Company)

corporation is a business that operates as a legal entity separate from its owner or owners. Corporations are registered in a provincial or federal registry and must file annual reports, submit tax returns, and pay taxes.

The shareholders who own the company aren’t personally liable for the company’s debts unless they have signed a personal guarantee. Corporations may have one or more shareholders, who typically enter a shareholders’ agreement setting forth use a limited company for your startup the conditions of their involvement. They also elect directors who manage the corporation on a day-to-day basis.

Corporations are a convenient means for investments by groups of two or more people. Partners hold shares in the company that can be bought, sold, or transferred. This provides a possible exit if you need or want to leave the partnership.

A corporate structure has many tax benefits. With a proprietorship or partnership structure, you have to declare and pay tax on all your income in the taxation year you earned the income. However, with a corporation, you pay a corporate tax in the year money is earned which enjoys a reduced tax rate up to approximately $500,000 if the corporation has three employees or less and other criteria are met; the regular tax rate applies after that. You don’t pay any personal tax until you take money out of your company, so in that sense you have strategic planning options. Lots of other tax planning benefits exist, too. For example, taking money out by means of bonuses, dividends, salaries, or borrowing money from your company. Your accountant can spell out the benefits in your specific situation.

While taxable income from a real estate corporation may enjoy reduced taxes, passive income from real estate assets is subject to an elevated tax rate.

Consult your accountant to ensure the most tax-advantageous arrangement if you incorporate.

Corporations are subject to strict reporting requirements set forth in the laws of the province where the company incorporates (see the appropriate statutes in your jurisdiction; these are usually available online, and in summary form from the registry where incorporations are registered), but the advantage for you, as a shareholder, is that the company accepts full responsibility for all claims made against it. Unless you sign a personal guarantee for claims against the corporation, claims are limited to the corporation’s assets.

 

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