As a Canadian health professional, you have the option to incorporate your practice which can be a great opportunity to set up your business right from the start. But it's important to start thinking about your long-term goals, liability protection, and the potential needs you may have, like getting access to capital, before you make the decision. If you incorporate too early or for the wrong reasons, it can end up costing more than operating as a sole proprietor. In this article, we'll walk through the key triggers that indicate incorporating your business may be the right choice and when to remain a sole proprietorship.

So, when should you incorporate?

The following triggers will help you know when to incorporate your business or remain a sole proprietorship. Although there can be tax benefits to having an incorporated business, it's vital to review these triggers and take into account all of these important components so you don't incorporate early.

1. When Your Regulatory Body Or Association Says You Must

If you are a health professional in Canada, it is likely that your regulatory body or professional association will dictate when you must incorporate your business. Many health professionals must become professional corporations when they reach a certain size or when they want to hire additional employees. This is because incorporating a business allows you to limit your personal liability when it comes to liability and protects you from certain claims against your business.

In Canada, when a clinic consists of two or more practitioners, they may be required to incorporate their business as a professional corporation. This is done to protect the owners as well as their employees from any liabilities that may arise when providing health services. In addition, when clinics reach a certain size and can no longer be managed by an individual, they are also required to incorporate their business.

Make sure to check with your regulatory body for these mandatory incorporation requirements.

2. When You Need To Protect Your Assets

Incorporating your Canadian Health business can be a great way to protect your business assets, intellectual property and safeguard against potential liabilities. Incorporation brings with it the benefit of limited liability, meaning that when incorporated, you will not be held personally responsible for debts or other obligations related to your business. This means that creditors cannot pursue personal assets such personal property such as bank accounts, vehicles or homes in order to satisfy any debt owed by the corporation because they are now assets owned by the corporation. By incorporating a company, you create a separate legal entity which is liable for its own actions and debts rather than yourself as an individual.

It is important to note that you cannot remove legal liability for your practice. You must always have adequate malpractice insurance in place in case you are sued for professional negligence.

3. When You Want To Access Investment Capital

If you are looking to access investment capital to start a clinic or expand your existing clinic, incorporating can be a great way to open up the possibility of raising funds from investors for access to more money. Incorporation allows for the issuance of shares in exchange for investments and provides investors with certain legal rights when it comes to managing their stake in the company.

When incorporated, businesses often have an easier time obtaining loans, accessing more money, and obtaining other forms of financing from banks or lending institutions, as they provide creditors with more security when it comes to repayment. This could be a great option if you are starting a clinic and need to borrow money for the property rental, purchase, equipment, or clinic expansion.

The Canada Small Business Financing Program (CSBFP) is a government program that makes it easier for small businesses to get loans from banks because they share the risk with the lenders. This is only available to new corporations.

4. When You Have Employees or Contractors

When a Canadian health business is growing and hiring employees or contractors, there are many implications that come with it. Incorporating can be beneficial when a business is looking to hire staff, as it makes onboarding them more efficient by providing clarity regarding employment terms and how payroll will work. Additionally, when a business is incorporated, it may become eligible for certain employee benefits such as group insurance and pension plans. It’s also important to protect yourself from potential lawsuits when employees or contractors work for you.

5. When It Makes Financial Sense For Tax Advantages

Tax and financial triggers that may indicate it’s time to incorporate a business include when there is a need for additional capital and when it makes financial sense to take advantage of potential tax savings. Incorporation can be a beneficial option when seeking additional capital as it allows businesses to access investor capital and other funding sources and increases credibility when looking to attract investors. Additionally, when incorporated, you can leave excess funds in the corporation to defer your personal income tax bill. Corporate income tax rates are much lower than personal income tax rates, especially below $500,000 of annual taxable income.

6. When The Benefits Outweigh The Costs of Incorporating

Incorporating is not a decision to be taken lightly, as there are numerous costs associated with the process. In order to incorporate your business in Canada, you must file an Articles of Incorporation with a provincial or federal government agency and pay any corresponding filing fees. Additionally, when incorporating your business, you are required to register it with the Canada Revenue Agency and must also file any remittance forms when businesses are subject to payroll deductions or other taxes. When weighing the costs of incorporation against potential benefits, ensuring that the long-term rewards outweigh the initial investment when deciding when it’s best to incorporate your Canadian health business is important.

Incorporation can be beneficial when a business is looking to hire staff, get access to capital, have multiple investors, or when there are potential tax advantages. However, numerous costs are also associated with the process, such as filing fees and annual income tax filing. When deciding if incorporating is right for your Canadian health business, it is important to ensure that the long-term rewards outweigh any initial investment in order to make an informed decision on what may be best for you and your business.

The Right Reasons To Incorporate Your Business

Incorporating your Canadian health business can have many advantages - but don’t do it for the wrong reasons. If your association requires you to incorporate, you need to protect your business income and assets, you are looking for easier access to capital, and you can properly tax plan; a corporation is a great business structure choice.

You may be thinking that incorporating your new health business from the start is the best decision–but making the wrong decision can cost you! Learn the best business structure for your business and how to set it up correctly with Business Foundations Incorporating: The Blueprint to understanding the business structure options for your new health business.