When do you Incorporate a Business?


#1

I’m Canadian so I don’t know if this might be different in other parts of the world. I’m just starting in my freelancing journey. I’ve been doing occasional projects just under my own name for a few months. What are the advantages of incorporating yourself, are there any disadvantages at such an early stage?


#2

As a starting point you might want to check out Episode 23:

David did a nice job talking about some of the options and implications. However, particularly given that you’re not in the U.S., I’d definitely say you want to go to a professional and get some advice.


#4

Thank you, I’m still working through the backlog of episodes so I hadn’t listened to that one yet.


#5

I can’t speak for Canadia, but I incorporated years ago as soon as I knew it was something I wanted to do, and then ate the small amount of time and cost to keep my business going while I waiting for my chance.

This was hugely helpful for when I did quit my job because I did not have to go and spend a bunch of time getting it setup, it was just waiting.

I would say that it generally can’t hurt*, and it is nice to be able to have a wall between what the business does and traids under its own name and what I do as a person.

*It depends in your local laws, don’t take the advice of randos on the internet as the law, always double check and do your own research, nothing is a substitute for real experts.


#6

I don’t know if you have LLCs in CA, but it would be worth looking into. $75/yr here, and affords you protection while allowing you to mix finances. IIRC, it’s been a minute.


#7

As a CPA in the USA I would definitely recommend talking to either an accountant or attorney in your area. Could be a potentially expensive mistake if you don’t follow the tax/legal rules for your chosen type of entity.


#8

Thank you, I will for sure reach out to an accountant to clarify the details. I’ve found quite a few options online but it can be hard to know what the right path is.


#9

I am an expert on corporate stuff, but not in Canada, so I’ll shut up. Just one advice: don’t ask the internet, ask a professional (taxes, legal obligaitions, liabilities).


#10

Sent you a private message.

I can help answer some questions for you. I’m Canadian, a lawyer and a CPA and have a law practice that specializes in tax, corporate law and estate planning.

Happy to help any way I can.


#11

Once you know what you want to do, incorporation is sensible for many. In the United States and in Florida, where I live, there is a series of legal and financial protections for a company or corporation versus an individual. I was aware of this from working as a writer and editor for newspapers. I will not explain the details. That is the role of a lawyer. Indeed, I hired a lawyer to go over this with me. He focused in substantial part on the idea of a potential legal opponent having “to pierce the corporate veil,” which offers protection to the individual. That was what I was seeking, so I paid him to set up at Florida limited liability company — an LLC. Here is a link to a Wikipedia article on the idea of piercing the corporate veil: https://en.wikipedia.org/wiki/Piercing_the_corporate_veil.


#12

@shaleco I am Canadian (no Molson jokes) and have been a free agent since 1993 and incorporated since 1995. Nearly all accountants in Canada will tell you to incorporate as soon as you can, but I do advise asking an accountant.

People are correct, things are very different when it comes to incorporation from the US to Canada. The rules and regulations around corporations in Canada are less stringent (I believe) than in the US and a private corporation is not much more than a US LLC. The rules are slightly different from province to province so make sure you check with a local accountant. I believe in most provinces you are looking at around $200 - $400 to incorporate and an annual fee of approximately $100 for (what it is called in Alberta) an Annual Return which lists changes in officers or shares for a private corporation. You will also need to file separate tax return for the corporation which I would STRONGLY suggest be done by a professional accountant. As well you must keep separate bank accounts for the corporation from your personal accounts. Of course, even as a Sole Proprietorship or Limited Liability Partnership, you are likely going the separate bank account and accountant route. You will also need to register with CRA (Canada Revenue Agency) for things like GST submission and Payroll taxes in either case (yes you still need to collect income tax and possibly CPP from yourself as a sole proprietor). The only time it really doesn’t make sense is when you earn so little from your side business that CRA classifies it as a hobby, likely (consult an accountant, did I mention that?) around a few hundred dollars a year. The official CRA rule is worded something like ‘a reasonable expectation of income’.

If you are getting hired by an intermediary firm or only for a period of time by a company, most firms prefer that you are incorporated as this makes it more difficult for CRA to assess that you were actually an employee of the firm and come after them for payroll taxes.

Hope this helps and did I mention, you should consult an accountant?