Is incorporation right for you?
Whether you should operate your business as a corporation, partnership, sole proprietorship or co-operative depends on your particular situation and your particular needs.
Benefits of incorporating a new company in Manitoba
Incorporating a new company in Manitoba, Canada offers many benefits to your company, including:
- creation of a separate legal entity
- limited liability
- lower corporate tax rates
- better access to capital and grants
- continuous existence.
- Separate legal entity
The act of incorporating creates a new legal entity called a corporation, commonly referred to as a “company”. Your Manitoba corporation will have the same rights and obligations under Canadian law as a natural person. Among other things, this means that it can acquire assets, obtain a loan, enter into contracts, sue or be sued, and even be found guilty of committing a crime. Your corporation’s money and other assets belong to the corporation and not to its shareholders.
Limited liability of Manitoba Corporations
Incorporation limits the liability of a corporation’s shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If your corporation goes bankrupt, your shareholders will not lose more than their investment (except shareholders who have provided personal guarantees for the corporation’s debts). Creditors also cannot sue your shareholders for the corporation’s liabilities (debts), even though the shareholders are the owners of your corporation.
However, if a shareholder has another relationship with the corporation (for ex., as a director), there are circumstances when this person can be liable for the debts of the corporation. In other words, the person would not be liable for the corporation’s debts as a shareholder, but as a director.
Lower corporate tax rates
Manitoba Corporations are taxed separately from their owners. Because the corporate tax rate is generally lower than the individual tax rate, incorporation can offer you some fiscal advantages. Consider consulting a lawyer or an accountant to help you assess whether incorporating might save you money. In fact, your accountant will likely recommend incorporation once your revenues reach a certain point.
Better access to capital and grants
Raising money is often easier for corporations than it is for other forms of business. For example, your Manitoba corporation would have the option of issuing bonds or share certificates to investors. Other types of businesses must rely solely on their own money and loans for capital. This can limit the ability of your business to expand.
Manitoba Corporations are also often able to borrow money at lower rates than the rates offered to other types of businesses. Financial institutions and others tend to see loans to corporations as less risky than those given to businesses that are not incorporated.
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Continuous existence
Your Manitoba corporation would continue to exist even if every shareholder and director were to die. In these circumstances, ownership of the corporation would simply transfer to the shareholders’ heirs. This is not the case for partnerships or sole proprietorships, which cease to exist on the death of their owners.
This greater stability would allow your corporation to plan over a longer term. It also helps in obtaining more favourable financing.
Implications of incorporating a new company in Manitoba
Your decision to incorporate also needs to take into account the implications of incorporating, including:
- higher start-up costs
- administrative requirements
- more complex structure.
Higher start-up costs
If you decide to incorporate your business in Manitoba, you will have higher start-up costs than if you carry on the business as a sole proprietorship or partnership. Some of these costs are directly related to the process of setting up the corporation. Other costs can include ongoing professional fees paid for legal and accounting services.
Administrative requirements of Manitoba Corporations
Your Manitoba corporation must file certain documents with the Manitoba Corporate Registries Office, including:
- articles of incorporation
- annual returns
- notices of any changes in the board of directors
- notices of any changes in the address of the registered office
- articles of amendment if changes to the structure of the corporation are made.
Your Manitoba Corporation must also:
- maintaining corporate records specified by the Manitoba Business Corporation Act
- file corporate income tax returns with the Canada Revenue Agency
- Register extra provincially in any province or territory where it carries on business.
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More complex structure
Because your Manitoba corporation would be a separate legal entity that has no physical form, its activities must be carried out by individuals who have an interest in the corporation and who are entitled to act on its behalf. These individuals can be divided into three categories:
Shareholders – These are the people who own the corporation. They make decisions by voting and passing resolutions, generally at a shareholders’ meeting. Most importantly, they elect the directors of the corporation.
Directors – They supervise the management of the corporation’s business. A corporation must have at least one director. Directors are also responsible for appointing the corporation’s officers. A director cannot be another corporation.
Officers – A corporation’s officers hold positions such as president, chief executive officer, secretary and chief financial officer. Although a corporation’s officers are appointed by the directors, their duties are normally set out in the by-laws. In general, officers are responsible for managing and carrying out the corporation’s day-to-day business.
An individual can hold more than one of these positions in a corporation. For example, you can be a shareholder, a director and an officer, or even the sole shareholder, sole director and sole officer.
