How to incorporate yourself

Make sure it’s worth it
If you’re making $90,000 or more in after-tax self-employment earnings, it’s worth investigating incorporation. But it’s usually only worth the hassle and expense if you can invest a chunk of your income back into the business. “The kind of pattern I look for is an individual who makes more money than they spend,” says Vancouver business lawyer Bruce Redekop. Basically, the idea is to use the corporation as your personal pension plan and build up investment assets inside of it that you can withdraw in retirement.

Another good reason to incorporate is legal protection. “It protects your personal assets should a client take legal action,” says Paul Reid, the former owner of a security business.

Hire a lawyer
If you incorporate on your own, it will only cost you $1,000 or so in various fees, but things get complicated fast. You’ll need to create technical documents such as articles of incorporation, so it’s probably worth it to cough up another $750 or so to have a lawyer guide you through the process. “If you don’t know how to do it, hire someone who does,” advises Reid, who paid a lawyer and an accountant to set up his company.

Pick a great name
You’ll need to pick a name that isn’t already in use, and decide whether to incorporate provincially or federally. Finally, you’ll need to figure out the ownership structure. You can be the sole owner, or you can set up a family member as a part owner.

Beware the downside
While incorporation can save you taxes, it does have a downside. In addition to the administrative and legal costs, your corporation will not be eligible for personal tax credits that you may have been able to claim before. You also have less flexibility when handling business losses.

Get some help
In theory, you need to hold an annual general meeting, but most small businesses just sign AGM documents that a lawyer provides. Your lawyer can also file your annual report and other paperwork for about $400 a year. An accountant will come in handy, as you’ll have to file a separate tax return for your corporation. “The biggest lesson I learned was to hire administrative help, so I could concentrate on making money,” says Jon, a tile installer with his own corporation in London, Ont.

Enjoy the rewards
Congratulations, you are officially Me, Inc. “Huge advantages exist if you’re set up properly,” says Nick Burd, partner at Chaplin & Burd Chartered Accountants. For instance, your corporation will be taxed at a lower rate than your personal tax rate, and you can run your business expenses through the company. Plus, you might be able to pay a family member a salary or dividends, reducing your overall tax bill.