Comparing types of businesses in Canada

Jul 19, 2023

 

Whether you bought a business or plan to start one, you must first choose the best company type (also called “business structure” or “business entity”). Each type has pros and cons. Here are some factors to consider when deciding to form an LLC or incorporate as a corporation C Corporation or S Corporation in Canada.

Next, we will consider each of them.

What is a C Corporation?

A C Corporation, commonly known as a general for-profit corporation, is a popular choice among new businesses due to several advantageous features. One key benefit is the ability to deduct certain expenses, such as employee health insurance and dental plans, resulting in substantial annual savings. Moreover, corporations can issue stock, making them attractive to entrepreneurs and venture capitalists seeking to invest in the business.

How does forming a corporation protect the owners of a business?

The formation of a corporation provides significant protection to the owners. By legally defining the business as a separate entity, the personal assets of the owners, such as homes and vehicles, are safeguarded from being targeted by creditors to settle business debts. In the unfortunate event of a lawsuit, only the corporation’s assets would be at risk, leaving the owners’ personal assets unaffected. Furthermore, a C Corporation maintains its own credit rating independent of the owners, ensuring that personal credit remains unaffected by the business’s financial issues.

What kinds of businesses should file for a corporation?

Corporations are well-suited for businesses seeking a formal structure with flexible ownership options. They allow individuals, both foreign and domestic, as well as other companies or legal entities, to purchase stock, making it an appealing choice for raising capital and attracting potential investors. Additionally, corporations have perpetual existence, meaning their survival is not directly tied to changes in ownership.

What are the maintenance requirements of a corporation?

Maintaining a corporation requires compliance with annual corporate formalities, including notifying directors and shareholders of annual meetings, filing a Statement of Information with the Secretary of State, holding yearly meetings, and documenting these proceedings through corporate minutes. Meeting these requirements in a timely manner is crucial to keeping the business in good standing and retaining the liability protection offered by the corporation. MyCorporation offers a business maintenance package that can assist with automating these annual requirements.

What are the tax advantages of forming a corporation?

Regarding tax advantages, corporations can deduct employee benefits, such as medical insurance and retirement plans, and can fully deduct losses. However, they are subject to “double taxation,” as income is taxed at both the corporate and personal levels. The decision to form a corporation should be made after carefully considering the specific financial details and structure of the business. Seeking advice from an accountant is recommended to determine the most suitable entity type aligned with the business goals.

For further insight into the differences between an LLC and a corporation, you can refer to our comprehensive LLC vs. Corporation comparison.

 

Learn more about: S Corporation

 

 

 

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