There are two primary reasons for incorporating small closely held companies in B.C.. One is to limit your liability. The public does business with your company instead of you personally. Employees, contractors, customers, who are unhappy or disgruntled would sue the company, not you, and as a result your personal assets should be protected from risk. The other good reason to incorporate is for tax purposes. Your accountant will tell you whether there could be a tax advantage for you to incorporate. Many families split income to gain best tax advantage, assets may be transferred in and out of the company tax free, and when a family company is thriving, there can be the ability to freeze the value for the 1st generation, and have the younger generation’s interests continue to grow.
A company or corporation is a legal entity or “person”, if you will. The Registry in Victoria and the legislation which allows for your company’s creation require that certain meetings be held, resolutions passed and reporting done to keep this new person alive. Many people see this as unnecessary, boring, a “cash grab”, unimportant. Your company record is a public record, it is the price that we pay for the right to limited liability that a company affords us. As a result, the public has a right to know your company’s status, its records office whereabouts, and the identity and addresses for its directors. Every company in B.C. must file annual reports online to ensure that it continues to exist and to update the accuracy of this basic information.
Filing of the annual report is certification that the requisite meetings have been held, resolutions passed, etc. To certify this as true when it isn’t is an offence under the Offence Act of B.C. Failure to file will ultimately result in your company being dissolved and struck from the register in Victoria. Assets belonging to your company at the time of its dissolution are at risk of escheating to the crown. Any tax benefits or write offs are lost. There are procedures for having your company restored to the register, but these processes are expensive and time consuming.
In my practice, my corporate clients pay me $175.00 in fees per year to care for their records, to represent their company to the public, to prepare and file their annual reports, to keep them apprised of changes in the laws and to answer their general legal questions as they arise.
The cost of corporate upkeep through a lawyer is negligible, the benefits and savings are endless…