Incorporating Your Small Business
Givens LLP | July 22, 2025
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Incorporating your business is a major step —and one that could save you money, limit your liability, and make your company more attractive to investors. But it also brings about new responsibilities and complexities. At Givens LLP, we regularly guide entrepreneurs and small business owners through this critical decision.
Here’s what you need to know before making the leap from sole proprietorship to incorporation in Canada.
What Does it Mean to Incorporate?
Incorporating means turning your business into a separate legal entity. Unlike a sole proprietorship or partnership, a corporation:
- Has its own legal rights and obligations
- Files its own tax returns
- Owns its assets independently of its shareholders
- Offers limited liability to its owners
This separation is key—it’s what protects your personal assets from business-related liabilities.
Benefits of Incorporation
- Limited Liability Protection
One of the main advantages of incorporating your business is that your personal assets are generally protected if you ever face legal action. This is a key motivator for many entrepreneurs, especially those who operate in high-risk business environments or work with a vulnerable population.
2. Tax Advantages
Corporations are taxed differently than individuals. In Canada:
- The small business tax rate on the first $500,000 of active business income is significantly lower than personal tax rates (11% federally and provincially in Alberta)
- If your earnings are in excess of what your annual spending needs are, you can defer personal taxes by keeping income in the corporation. This allows you the benefit of using corporate funds to further invest in your business or build additional wealth.
- Eligible businesses may benefit from the Lifetime Capital Gain Exemption (LCGE) on sale of shares which allows shareholders of a Qualified Small Business to benefit from sheltering up to $1,250,000 (indexed annually) of gains.
Keep in mind, incorporation doesn’t automatically equate to tax savings – it depends on how your business is structured, earnings and how much is kept in the corporation. This is where professional advice matters and where we at Givens LLP can help!
3. Enhanced Credibility
Clients, lenders, and partners often perceive incorporated business as more established and trustworthy in comparison to a sole proprietorship.
4. Easier Access to Capital
Incorporated businesses can issue shares, attract investors and also qualify for certain types of financing not always available to sole proprietorships.
Things to Consider Before You Incorporate
1. Startup and Ongoing Costs
Incorporating involves:
- Legal fees for drafting articles of incorporation and shareholders’ agreements
- Accounting fees for preparing corporate tax returns (T2)
- Annual filing and record-keeping requirements
2. More Complex Compliance
You’ll need to:
- Maintain corporate records and minutes
- File separate tax returns (personal and corporate)
- Issue T4s (wages) and T5s (dividends as appropriate)
3. Pay Structure and Compensation Planning
As a shareholder/employee, you’ll need to determine how to compensate yourself: salary, dividends, or a combination. Each comes with tax implications and planning opportunities.
How Givens LLP Can Help
Incorporation can unlock growth and protection—but it must be done right. At Givens LLP, we support clients through:
- Help you determine the right time to incorporate
- Structuring the corporation tax-efficiently
- Registering with the CRA and provincial authorities
- Setting up proper payroll, GST/HST, and corporate accounts
- Developing a compensation and dividend strategy
- Filing corporate tax returns and financial statements
Ready to Take the Next Step?
Whether you're still weighing the pros and cons, Givens LLP is here to support you with expert advice and hands-on service.
Let’s talk about whether incorporation is right for you. Book a consultation with us today.
