Incorporation is an administrative procedure for setting up a company. The latter, which is a legal person, has the rights, but is also subject to obligations. Legally, the incorporated enterprise is an entity completely dissociated from the persons of which it is composed. IncorporationEntreprise.Ca Inc. here presents you the many advantages of this form of business.
Corporate Tax Rate
The main advantage of business incorporation is the low tax rate. Indeed, the latter is placed at 19% applicable only on the first $500,000 of net profit made by the company. This tax rate is the equivalent of a tax deferral of more than 30%. It is true that this reduction of more than 30% is applicable to a business with a Québec Enterprise Number (NEQ).
In addition, it is possible to create subsidiaries of this company and to put each of them under separate administrations. In other words, it is a question of creating a corporate group composed of several distinct companies. Each of these divisions will benefit from a 19% tax rate on the first $500,000. This is a way of splitting all the income of the incorporated company in order to pay less tax. Of course, there are rules that govern this process.
Beyond the first profits of $500,000, the tax rate for an incorporated business is 26.9%. This is always advantageous for the joint-stock company. This is a very reasonable tax system. Indeed, the marginal tax rate to which individuals are subject in Quebec is around 50%.
Protection of heritage
By incorporating your business, you dissociate yourself from it. You are a natural person while it becomes a legal person. In other words, the corporation is a person in its own right. Similarly, his patrimony is dissociated from your personal patrimony.
When the company has creditors, they will not be able to seize your properties. You are to a large extent, sheltered from a ruin that could be caused by mismanagement of the company.
If the company with a NEQ has separate divisions and each of them has its own administration, the fault of one lies exclusively with it. In other words, when one of the separate divisions of the corporation is convicted by a court of debt or fault, it will be the only one to pay the debts and damages. The other companies in the group will not have to pay anything.
No tax on the sale of shares in the company
As a shareholder of the company with a Québec Enterprise Number, you can sell your shares at any time. The profits from this sale of the company’s shares are exempt from tax. According to the annual indexation that came into effect in 2015, you are granted the opportunity to obtain up to $800,000 in tax-exempt profit.
In addition, you can enhance this benefit by using the exemption of those in your family. Ultimately, it becomes possible to sell millions of dollars of company stock without having to pay any taxes.
Make withdrawals of money from the company without paying tax
To make expenses on behalf of your family, you are required to use your tax-reduced income. The tax rate is 50%. Now, thanks to the corporation in which you are a shareholder, you can pay substantial taxes on your income that will have to be used to pay the expenses of your family members. Sometimes the tax rate applied to this income is zero. This is a boon that must be taken advantage of.
The fact that you and the incorporated corporation are separate, each of you is a taxpayer dissociated from the other. Therefore, when it happens that the company makes losses, these will be used exclusively against the future profits of the company. However, if it had been a sole proprietorship, these losses are deductible from your personal income.
Often, companies make losses in their first years of existence. Generally, this is known by the shareholders before the creation of the company. So, the trick used here is to create a personal business in order to take advantage of the losses made automatically against the additional sources of income. As soon as the business is profitable, you can then proceed with the incorporation.
We must remind you that taking into account other parameters, you may be obliged to proceed with the incorporation as soon as the company is born. In any case, IncorporationEntreprise.Ca Inc. will provide you with advice so that you can make the right decision when it comes to business incorporation. We also support you with other administrative procedures including the creation of tax bills.