Incorporating a business means creating a separate legal entity to carry on your business. This separate entity is called a company or corporation. As a separate legal entity, the company can enter into contracts, own property, have debts and sue others and be sued in its own name. The owner of the company or corporation is referred to as a shareholder. The shareholders of the company would not be liable for the debts of the company, unless they have personally guaranteed those debts.
No. You don’t need to incorporate a company and can carry on a business as a sole proprietor. This means you carry on a business in your own name or under what is referred to as a ‘DBA’ or ‘doing business as name’ which can be registered for a nominal fee with the Registrar of Companies. It is important to note, however, that as a sole proprietorship, you are personally liable for all of the debts of the business.
You can incorporate a company provincially under the Business Corporations Act of British Columbia or federally under the Canada Business Corporations Act. You may choose to incorporate a federal corporation if you expect the company to carry on its operations throughout Canada. Each legislation has certain requirements so it is best to seek legal counsel before deciding on which type of entity to incorporate.
Some advantages are as follows:
Limited Liability: the company is a separate legal entity from its shareholders and therefore the liability of the shareholders is generally limited to the amount of money they have contributed by way of payment to the company for the purchase of shares.
Taxes: incorporated companies have some flexibility with taxes and may receive preferential income tax treatment if certain conditions are met.
Transfer of Ownership: it may be easier to transfer ownership by selling the shares of the company.
You can also carry on a business through a partnership. In a partnership, two or more persons carry on the business together and may be deemed to be a partnership whether or not they have signed an agreement. In this form the individual partners would need to disclose their income on their individual tax returns and are personally liable for the debts of the partnership unless it is a limited partnership. They may also be liable for wrongful acts committed by the other partners or employees during the course of the business.
Recent amendments to the Business Corporations Act of British Columbia require that BC private companies keep a record of the beneficial owners in what is referred to as a Transparency Register. Bearer shares have also been eliminated. The amendments reflect similar changes to the law in other jurisdictions on a national and international level. The provincial government has taken these steps to increase beneficial ownership transparency and to prevent BC companies from being used for tax evasion and money laundering purposes.