When folks ask me when its time to incorporate my answer is always “it depends”. Generally, you should ask yourself the following 3 questions:
- Do you plan to sell the business in the future?
- Do you earn more income than you need for living expenses?
- Are you considered with legal protection?
After going through these questions, you should have a good idea on whether you should incorporation.
For example, if you plan to sell your business in the future you will benefit from the lifetime capital gains exemption which shields the gain on the sale of your business up to a prescribed amount.
If you earn more income then you need for living expenses, incorporation will benefit you by way of tax deferral. If you leave income in the corporation, it is subject to the small business deduction tax rate (12.5%) in Ontario. If you do not pay yourself a salary or dividend, the tax you would have paid personally can now be invested.
If your concerned with potential litigation due the inherent nature of your business, a corporation offers some legal protection.