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When should you incorporate your business?

Businesses in Québec are classified into three categories, including incorporated corporations or business corporations. This category of business has advantages that push many entrepreneurs to want to incorporate their businesses. However, this change of register is not without consequences and it is essential to know when to do it and where to turn when you decide to do it.

When can you incorporate your business?

businessman - registration time

An incorporated enterprise is a legal entity with its own inalienable legal personality. It can therefore carry out several operations and is bound by various obligations. As an independent and real entity, it can build up assets and carry out banking operations. It has its own tax system and a research fund. You will recognize a corporation incorporated in Québec City by its name, which ends with one of the following:

  • Inc. or incorporated;
  • Ltd. or limited;
  • Corporation or S.A…

The incorporation of a company will take place when a number of conditions are met.

Strong ability to bear costs

You can incorporate your business when it is able to pay the incorporation fee which is quite significant. You can proceed with the incorporation by yourself when it is basically a sole proprietorship with simple taxation. Otherwise, you have to pay between $750 and $3500 in legal fees.

Be able to keep rigorous and complex accounts

Unlike a partnership, a corporation is required to explain all financial flows involving the business. It must draw up a balance sheet in addition to the income statement. This requires having an advanced accounting professional. Indeed, the accounting management of such a developing company is very time-consuming. However, your time is money for you.

Be able to bear the costs of producing annual accounting reports

At the end of each annual fiscal year of the enterprise, it must declare its income and produce financial statements. This has a cost that is $5000 depending on the skill level of the accountant and many other things.

If the fees are too high for the company, you would benefit from staying in the current simple legal form. The mistake you might make is to stubbornly incorporate your company and want to take care of producing the annual requirements yourself. It could cost you a lot of money.

When the company has validated its assumptions

Corporate incorporation is the business of a company whose manager is no longer in test mode, but has moved to the status of agile entrepreneur.

Indeed, it will be possible to make disbursements, even against your own income. And to do this, it is not even necessary that you have made sales or profits.

Therefore, before you want to incorporate, it is important to be sure that the market for your industry is favorable and that you have enough experience as an entrepreneur. If your current situation does not allow for incorporation, you will do so later when your accounting allows.

When the company is eligible for credit applications

Not all businesses can benefit from tax credits. Nor are all of them eligible for grants. Indeed, to benefit from these advantages, it is sometimes necessary to incorporate the company.

If your current competitors receive subsidies because they are incorporated, you may want to consider taking an incorporated legal form. However, we must remind you that tax benefits are only available under certain conditions. Also check that you fill them out.

When the company has large monetary surpluses

An incorporated business requires several tax strategies to be in place. This allows for sound planning and savings for the company. These strategies are:

  • estate freeze;
  • income splitting;
  • income averaging;
  • external investment;
  • investment strategies;
  • parental planning…

To implement the different strategies and reduce business risks, it is necessary to have a very large cash flow. In addition, the implementation of these strategies requires the intervention of internal or external employees who will have to be remunerated at their fair values.

In other words, if your business does not have a monetary surplus of $50,000 at the end of each fiscal year, there is no need to incorporate. The ideal is to add to the monetary surpluses those of the stock and material.

Incorporation of a company: why do you need to call on a professional?

As you will have understood, the incorporation of a company requires to have time to carry out the administrative procedures, but also to have skills in the matter. As a result, it is a significant investment. In view of this, it is necessary to use the services of a professional in this field.

With more than 1095 incorporated companies to its credit, Incorporation Entreprise is the best montreal-based company that can support you in this process. Our services are provided to any contractor in the province of Quebec.

We provide several services including:

  • management of Minute Book;
  • consultation with a lawyer;
  • shareholders’ agreement;
  • business creation;
  • creation of tax bills…

By trusting us, you and your company will save time and money to execute other business-friendly operations.

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