Incorporation alone is not magical. However, when all the rules are known and the maximum benefits are obtained from these regulations, the advantages can be extremely significant. In fact, the accumulation of various tax rules can make the incorporation of a company very interesting.
In addition to the legal benefits related to limited liability, subject to personal guarantees provided by shareholders and liability of directors in some cases, there are numerous legal and tax benefits.
1. LEGAL BENEFITS
1.1 Separate legal personality and limited liability of shareholders (“corporate veil”) 1.2 Perpetual existence 1.3 Ease of transferring interests 1.4 Ease of financing.
2. TAX BENEFITS
2.1 Favorable tax rate on active income, deferral of taxes, and preservation of certain social programs
2.2 Choice of remuneration or compensation: salaries vs. dividends
2.3 Possibility of splitting annual income into dividends and capital gains on the sale of company shares, subject to the application of the extended taxable income splitting rules (TOSI) since 2018
2.4 Immediate and tax-free collection of the tax cost of assets transferred to the company
2.5 Much lower cost for non-deductible expenses and for purchasing shares from a co-owner
2.6 Possibility of benefiting from the capital gains exemption on the sale of shares: however, it must be reasonable to anticipate that they could be sold
2.7 Choice of the shareholder-director’s vehicle holding mode
2.8 Non-application of restrictions on home office expenses
2.9 Access to certain tax credits.
3. LEGAL DISADVANTAGES
3.1 Lifting the corporate veil
3.2 Personal guarantee
3.3 Property right in the assets and benefits of the company.
4. TAX DISADVANTAGES
4.1 Legal and accounting costs + increased complexity
4.2 Social charges (health insurance and social benefits)
4.3 Restrictions on loans to shareholders.
