Definition

A corporation is a type of business entity that is registered under a provincial or federal act. It is considered a separate person, both legally and for taxation purposes. Corporations usually have a name followed by a choice of the words, Corporation, Corp., Incorporated, Inc. Limited, or Ltd.

Advantages

  • Income is taxed at a rate different than that of the owners.
  • Tax rates are usually lower that individuals.
  • There are more opportunities for tax planning.

Disadvantages

  • More expensive than sole proprietors to set up.
  • Separate financial statements and income tax returns are required. Accounting and legal expenses are higher due to statutory and taxation requirements.
  • Tax rate advantages dissipate if corporate earnings are withdrawn by owners (shareholders)