To Incorporate or Not To Incorporate?
You have a great idea. You are going to cast off the shackles of employment and strike out on your own. You have a sound business in mind: you are going to start a consulting firm or a software design venture or a home-based hair salon. Whatever the business, the first question you will need to ask yourself is: “Should I incorporate?”
You don’t need to incorporate; you can operate simply as a sole proprietor with little more formality than a business license, but to counter this apparent ease are numerous drawbacks. As a sole proprietor, if your business becomes a roaring success and you want to retire to Buenos Aires, you have little to sell to your successor, as there are no shares and no legal entity. Furthermore, as a sole proprietor, you are on the legal and financial hook should your business turn out to be…disappointing. If you lose your consulting clients (and your shirt in the process), your personal assets can be used to satisfy your business debts. And if you burn off your client’s long locks in a home perm gone wrong and she sues you? Without a corporation, you are personally liable for that too.
On the other hand, corporations cost money to set up and maintain. You have to file documents with the Registrar, which costs money; you have to print share certificates; you have to file tax returns for your company; and you might want to hire a lawyer to manage it for you. This might be more work and expense than you want to take on.
You have to weigh the pros and cons and decide whether incorporating is right or necessary for you and your business idea.
If you do decide to incorporate, there are more questions to answer: Should you incorporate in BC or federally? How many and what kind of shares should you have? What sort of maintenance will your corporation require? What happens if you forget to file your corporate annual report? How do you appoint a president? How often should you have an annual general meeting? (Maybe you won’t ask that last one.)
The answers to some such questions are going to depend on what your business is, who is involved, how you want to run it, and others are going to be spelled out in intricate detail in the BC Business Corporations Act or the Canada Business Corporations Act (depending on where you decide to incorporate).
There are numerous of resources available to help you to inform yourself of the options available, and which might be right for you and your new business. You can do your reading, register your own corporation and handle the maintenance yourself, but you might not want to — you might have enough on your plate just running the day to day operations of your enterprise, or you might be afraid of making a mistake and putting legality of your corporation at risk. It’s kind of like fixing your own car: you can do it, but it might be better to get some help (or at least advice) from a mechanic. If you have questions, it might be worth your while to speak to someone qualified to answer them, and to make sure that your company is soundly legal and acting in your best interests — before you administer another risky home perm on a vulnerable and litigious client.