What are the Advantages and Disadvantages of Incorporation?

Advantages:

Separate Legal Entity/ Limited Liability:

Your corporation is a separate legal entity and as such, creditors or legal actions are against the corporation and its assets, not your personal assets.  The shareholders of a corporation have limited liability. Please note shareholders can be legally liable for the corporation’s GST/HST and payroll taxes.

Tax Advantages:

If you don’t need all the corporation earnings for personal income, you can leave them in the corporation, deferring personal taxes on withdrawals and possibly enjoying a 15%  preferred tax rate on the first $500,000 of profit in a CCPC.

 Your corporation has tax flexibility from which you may personally benefit. If you sell shares in your Canadian-controlled private corporation (CCPC) capital gains will be tax–free up to $848,252.

Disadvantage

The administration costs are more expensive with a corporation than with a partnership or a sole proprietorship. Administration costs include incorporation costs, annual financial statements, and annual corporate income tax return.  

Losses in an incorporated business can’t be personally claimed.