When to Incorporate

A Buttertubs sunset
in the summer in Nanaimo

As the business grows there comes a time when incorporating makes sense. There are two very valid reasons to incorporate - one is to limit the liability of the owner and the other is when the owner does not need all the profit to live on.

A sole proprietor will pay taxes on ALL the profits from the business in the year. The highest personal marginal tax rate in British Columbia in 2006 is 43.7% for incomes over $118,286.

In 2006 in BC the small business tax rate is 19.62% up to $300,000 of profit. A corporation can pay the owner wages or dividends as needed. Any profit left over is taxed at the small business tax rate which is 19.62% up to $300,000 of profit.

At this stage the business requires the advice of a good lawyer and accountant in order that the corporation is set up in a way that is appropriate to the business and the family. For example, if more than one family member is working for a corporation it may be best to set up different share classes so that dividends can be paid to each member of the family as needed.