Entrepreneurship & Small Business

Changing Sole Proprietorship to Incorporation

  • Last Updated:
  • Oct 11th, 2017 10:57 am
[OP]
Newbie
May 21, 2016
19 posts

Changing Sole Proprietorship to Incorporation

Hi,

I am a sole proprietor of a small business, I could not open an incorporation at the first time because I was a temporary resident. Now, as I am a landed immigrant in Canada, I was wondering is there any benefit to turn my business into incorporation. If yes, can I convert my sole proprietorship into incorporation? Or do I have to open a new incorporation from the scratch? Do I need a different bank account for this? Your insight on this matter is highly appreciated.

Thank you for reading.
9 replies
Member
Jun 25, 2011
279 posts
101 upvotes
Alberta
The incorporation will be only beneficial if you are making significant profit. The reason is when you are not incorporated and you are startup you can write off your expenses to your business income but once you incorporate then you have restrictions to apply business loss toward the income. For example, capital loss can only be applied to capital gains, business loss toward income etc. If you have assets such as equipment, machineries buildings and inventory, then you can choose sec 85 rollovers to transfer your assets to your newly formed corporation without any tax implication. You generally don't need a new bank account but it is advisable to keep separate bank account for business purpose for accounting and audit purposes.
Deal Fanatic
User avatar
Nov 18, 2002
6846 posts
543 upvotes
Toronto
albertaguy wrote:
Oct 8th, 2017 11:06 pm
The incorporation will be only beneficial if you are making significant profit. The reason is when you are not incorporated and you are startup you can write off your expenses to your business income but once you incorporate then you have restrictions to apply business loss toward the income. For example, capital loss can only be applied to capital gains, business loss toward income etc. If you have assets such as equipment, machineries buildings and inventory, then you can choose sec 85 rollovers to transfer your assets to your newly formed corporation without any tax implication. You generally don't need a new bank account but it is advisable to keep separate bank account for business purpose for accounting and audit purposes.
Really? What bank will let me deposit cheques for my corporation into my differently named personal account?
Member
Jun 25, 2011
279 posts
101 upvotes
Alberta
ichpen wrote:
Oct 9th, 2017 8:00 am
Really? What bank will let me deposit cheques for my corporation into my differently named personal account?
Just use your head a little bit. Newly incorporated business can still ask their customers for payments to be made in to the personal name which they deposit in to personal account . This is more applicable when unincorporated business incorporate, as in the current case, where the customers don't care whether you had incorporated or not. Accounting and Tax rules does not prohibit choice of account as long as you are able to identify your business deposits and correctly report it.
Deal Fanatic
User avatar
Nov 18, 2002
6846 posts
543 upvotes
Toronto
albertaguy wrote:
Oct 9th, 2017 11:20 am
Just use your head a little bit. Newly incorporated business can still ask their customers for payments to be made in to the personal name which they deposit in to personal account . This is more applicable when unincorporated business incorporate, as in the current case, where the customers don't care whether you had incorporated or not. Accounting and Tax rules does not prohibit choice of account as long as you are able to identify your business deposits and correctly report it.
I am using my head. My head tells me that the question specifically was whether a new account with the bank is needed for the new corp and answer is absolutely YES. If you want to try to recognize corp revenue from your personal account then by all means give your accountant a ring and listen to his opinions on the matter. Considering biz accounts are mostly free (merits I won't get into) it's a no brainer to open a new account.

You also have real liability and optics issues and concerns if you continue to take money under your name and render services under your business. As a customer I would be extremely suspicious if anyone tried to pull this on me.
Member
Jun 25, 2011
279 posts
101 upvotes
Alberta
ichpen wrote:
Oct 9th, 2017 11:33 am
I am using my head. My head tells me that the question specifically was whether a new account with the bank is needed for the new corp and answer is absolutely YES. If you want to try to recognize corp revenue from your personal account then by all means give your accountant a ring and listen to his opinions on the matter. Considering biz accounts are mostly free (merits I won't get into) it's a no brainer to open a new account.

You also have real liability and optics issues and concerns if you continue to take money under your name and render services under your business. As a customer I would be extremely suspicious if anyone tried to pull this on me.
The question he asked was whether he needed a business bank account. The answer is legally he does not need a business account but it will be good to have a business account for all the reasons you mentioned above. Not everyone uses a cheque where you need a depositor name. No one will stop you to accept electronic payments to be deposited in whatever account number you want.
Deal Fanatic
User avatar
Nov 18, 2002
6846 posts
543 upvotes
Toronto
albertaguy wrote:
Oct 9th, 2017 11:42 am
The question he asked was whether he needed a business bank account. The answer is legally he does not need a business account but it will be good to have a business account for all the reasons you mentioned above. Not everyone uses a cheque where you need a depositor name. No one will stop you to accept electronic payments to be deposited in whatever account number you want.
Fair enough, legally you don't need a business level account in your corporate name. Practically it is essential as there are almost entirely downsides for not having one.
Sr. Member
User avatar
Jun 24, 2015
606 posts
57 upvotes
Woodbridge, ON
You can name your business the same name as your legal name so when they write checks to you, you can use a personal checking account and don't have to open a business account with the bank and it works out the same just saves u some money
Newbie
Jul 19, 2010
15 posts
4 upvotes
Like GoodFellaz said - if your business name is your personal name, you can use your personal account. Depending on your business structure (sales of goods versus service business, for example), it might not be advisable because if you get audited you will have 'commingled' accounts, which can lead to questions about or comparisons to non-business related items. You are better off creating a separate account for your business. You can set it up in your own name if you are using your personal name, or you can take proof of registration or your business ID number to the bank and set it up under that name.

There are low-fee (almost no-fee) business accounts available at a number of banks right now. It's worth it to set one up.

Pushing this a step further, if you are using your personal credit card for both personal and business expenses, I suggest you prepare an 'expense report' between yourself and the business to show that you are keeping detailed records that separate your business from personal expenses.

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