Toronto's Business Lawyer Blog

There are numerous reasons for incorporating your business, nevertheless, before we look at what some of those reasons are, we should address some of the fundamental realities of incorporation. Incorporation is but a singular facet of your business' legal configuration. It cannot be viewed in a vaccuum, where a certain expectation linked to incorporation will invariably be the result in every situation. As with everything else, the benefits of incorporation are impacted by a multiplicity of external forces, which often negate the benefits associated with incorporation. As such, an anticipated benefit can be negated (often without your knowledge) by other actions and laws, such that the benefits you have read about or been advised upon may not be available to yourself. Unfortuantely, this is the reality of corporate law, and the rationale for your understanding the broader realities of the law.

Two of the primary impediments to your realizing the anticipated benefits of incorporation are the law and subsequent contractual arrangements that you enter into. Statutory law puts clear clear legal constraints on the corporation, as is evident in the Canada Business Corporations Act and the Ontario Business Corporations Act. Other federal and provincial statutes also impose rules and constraints on incorporated companies, as does the common law (i.e., via the principles of fraud and negligence). Meanwhile, subsequent contractual arrangements that you enter into can negate or seriously reduce the strategic benefits associated with incorporation, whether its through the requirement of personal guarantees or indemnifiers, the specific relinquishment of legal protections, or such other contractual alterations.

Nevertheless, there are potential benefits associated with incorporation, which can be extremely lucrative if properly integrated into a thriving business, including eliminating or minimizing personal liability, prospective tax advantages (i.e., tax rates and tax deferral), business perception, partnering with shareholders, structuring for investment opportunities, structuring for control, business succession planning, among others. The key, however, is that you work with skilled professionals (lawyers and accountants) such that you understand the applicability of those legal benefits, their limitations and situations that will negate or seriously reduce those benefits.

When you incorporate a company, you will invariably benefit from the professional services of an experienced corporate lawyer who understands the importance of devising the appropriate corporate structure for your business operations, on a cost-effective basis.