In Quebec, for-profit businesses are separated into 3 modes of operation: sole proprietorship, partnership and corporation, also known as incorporated company.
The incorporated joint-stock company/incorporated company is considered a legal person from a legal point of view. The entity is then independent of the people who constitute it, which is not the case of a sole proprietorship, which is a less expensive mode of operation, but also riskier due to the merger of personal assets with those of the company.
Here are the main advantages of incorporation:
- Tax advantage:
For example, the first $500,000 of income is taxed at a favourable rate ranging from 15% to 20.6%, followed by a tax rate of 26.6%, compared to the progressive personal tax rate.
- The protection of your assets:
As mentioned above, the corporation is a legal person in its own right. In the case, for example, of the procedure for the seizure of a creditor, your assets are separate from those of the company.
- Image, professionalism & perception:
The choice of incorporation offers credibility that can positively affect capital injection and borrowing power, knowing that your personal debts and those of the company are separate.
- The sale of shares eligible for the capital gains exemption:
Get up to $800,000 tax-free, which can extend to a few million through your family member exemption.
- Limited legal liability:
Since shareholder liability is limited to funds invested in shares, shareholders can lose at most what they have invested, while the sale of shares has no limit on value gains.
- Legal sustainability:
The transfer of the shareholder’s shares to the estate following his death.
*Note that the statistics mentioned in this article may be subject to change, please pay attention to the date of publication of the article.
Updated December 17, 2021