benefits of using a Corporation to conduct business



When starting up a business, or to accommodate continued growth, a business person decide if it is better to use a corporation, or use some other legal structure such as a partnership,  limited partnership, or entirely different structure..  There are generally 3 common business structures that are used: a sole proprietorship, a partnership, or a corporation.  This article will address some frequently asked questions about using a corporation to carry on business.  There are many advantages to corporations and it is probably the most commonly used business structure.   There are some disadvantages and costs that should be considered.   For a brief summary of the process to incorporate a corporation, see the How to Incorporate

What is a Corporation?

A corporation is also commonly referred to as a "limited company" or just "company".  A corporation is a separate legal entity created by following the procedures set out in the applicable statute.  In British Columbia, the requirements to create a corporation are contained in the Business Corporations Act that came into effect on March 29, 2004.  Corporations that were incorporated under the old Company Act must within 2 years of March 29, 2004, complete a transition procedure to comply with the new Act.

Once created, the corporation has perpetual existence separate from the owners of the corporation, and the directors and officers of the corporation.  In British Columbia, a corporation has the same powers as a natural person: for example, a corporation can enter into contracts in the name of the corporation, sue and be sued in the name of the corporation, carry on business, buy and sell property, and form associations with other corporations or individuals, and even own another corporation.

Every corporation must have at least one shareholder, a director and officer.  The shareholders are the owners of the corporation.   The directors are the persons charged with the management and administration of the business and affairs of the corporation.  The officers of the corporation would normally be the president, the secretary and such other officers as the directors may decide upon.  If there is only one shareholder, then that person is generally the sole director and only officer of the corporation.  It is no longer necessary that there be a president and a secretary.  


What are the benefits of a Corporation?

There may be many advantages to using a corporation to carry on business depending on your circumstances.  Some of the main advantages of using a corporation to conduct business include the following:

  • Limited Liability:  The owners, or shareholders, of a corporation are not liable for the debts and obligations of a corporation. This means that, as normal rule, creditors of a corporation can  not  hold the  shareholders responsible for the debts of the corporation.  If the corporation can not pay its creditors, then the creditors have no right to claim payment from the shareholders.  There are exceptions to this general rule either by statute or because of some act done by the shareholders to make them personally liable.  . If you concerns about these exceptions, you should seek legal advise.

  • Ownership Easily Transferable:   Ownership of a corporation is transferred easily by transferring the shares.  It can be as simple as endorsing the back of the share certificate in favour of the new owner of the shares.  The change of ownership is then recorded in the records of the corporation.  However, if the corporation is actively carrying on business, the new owners will require various representations and warranties both from the seller of the shares and from the corporation.  The seller will also wish to exclude liability in certain areas and limit the representations and warranties given.  Also, certain technical requirements of the governing legislation must be met.

  • Perpetual Existence:  Since a corporation is a separate legal entity from the shareholders, the corporation can have perpetual existence.  It continues as a corporation in law even if the ownership of the corporation itself changes..  This provides for continuity for  the business of the corporation.


  • Tax Advantages:  Under Canadian income tax laws, there can be a tax advantage to operating a business through a corporation as opposed to a sole proprietorship, a partnership or some  other form.   If a corporation qualifies as a small business and has active income, then it can take advantage of the small business deduction and pay income taxes at a substantially reduced rate.  There can be a substantial tax saving compared to doing business outside of a corporation..

  • Raising Capital:   For a number of reasons, it can be easier to raise capital for a corporation than it is for a partnership or sole proprietor.  Lenders are more willing to lend capital to a corporation.  There are more sources of  capital for a corporation.

What are the disadvantages of a Corporation?

There are disadvantages to using a corporation to conduct business.  These should be considered carefully  before selecting the corporation to carry on business.

  • Greater Regulation  A corporation can be subject to greater regulation that  can add to the cost of doing business.  Various regulations may have to be complied with, for example, to sell shares, or raise capital.  

  • Cost of Organization:  The cost of organization for a corporation can be greater than for a sole proprietorship or a partnership. Some of the government fees are outlined in How to Incorporate.  As well, there will be legal fees involved.


  •  Record Keeping:  A corporation will be required to keep records of its shareholders, directors and officers, any changes of the shareholders, directors and officers, as well as records of its debts.  Records of various other transactions or changes in he corporation must also be kept.  Some of the records are open to public inspection; for example, anyone could have access to the list of shareholders although the new Business Corporations Act does have some restrictions.

  • Double Taxation:    Depending on what special  rights and restrictions are attached to the shares, and how the profits of the corporation are paid out to the shareholders, there is the possibility of double taxation:  the corporation must pay taxes on its profits and the shareholder may be  subject to taxation on the profits paid out.  This can result in greater taxation than if a corporation was not used for the business.

  • Director and Shareholder Liability:   While the general rule is limited liability, there are situations where directors and even shareholders of a corporation could be held personally liable for certain acts or failures of the corporation.  There are many statutes that created personal liability on the part of directors and even shareholders.  Also, the directors or shareholders might engage in activities, or fail to take certain steps, that could create personal liability. Without proper legal advise on the activities of a corporation, the benefits of using a corporation to conduct business could be lost.


If you have any questions on the issues discussed above, or on any legal issues  in general, please contact Sucha S. Ollek at: