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Introduction

Are you a tradesperson in Winnipeg, Brandon, Thompson, Portage La Prairie, or anywhere else in Manitoba, looking to take your business to the next level? Incorporating your business can offer significant benefits, including liability protection and tax advantages. This guide will help you understand the differences between a Canadian Corporation and a Manitoba Corporation, and how incorporation can protect you and your assets. We'll break down these legal concepts in everyday terms. You'll understand the basics. Incorporation might seem complicated, but it's an important step for securing your business's future.

Canadian Corporation vs. Manitoba Corporation

Canadian Corporation (Federal Incorporation)

A Canadian Corporation is incorporated under federal law, which means it can operate anywhere in Canada. This type of incorporation is ideal for businesses that plan to operate in multiple provinces, but are rarely good solutions for trades people in Manitoba. Here are some key points:

• National Recognition: A Canadian Corporation is recognized across all provinces and territories, which means you can do business anywhere in Canada without needing to register in each province individually.
• Business Name Protection: Your business name is protected throughout Canada, so no other business can use the same name in any province.
• Flexibility: It’s easier to move your business headquarters to another province if needed, giving you more flexibility as your business grows.

However, federal incorporation can be more complex and expensive due to additional regulations and compliance requirements. You will need to file annual returns and meet specific federal requirements, which might involve more paperwork and higher costs compared to provincial incorporation.  You will also have to register your corporation in Manitoba essentially doubling the work and the cost.

Manitoba Corporation (Provincial Incorporation)

A Manitoba Corporation is incorporated under provincial law, meaning it operates primarily within Manitoba. This type is suitable for businesses that intend to stay local.  It is usually the recommended option for trades people here. You can still take jobs in Ontario, Saskatchewan, Alberta or other provinces.  Key points include:

• Lower Costs: Generally, it is less expensive to incorporate provincially. The fees and regulatory requirements are usually lower than federal incorporation.
• Simpler Process: There are fewer regulatory hurdles compared to federal incorporation. The process is straightforward and typically faster.
• Local Recognition: Your business name is protected within Manitoba. While this limits your name protection to the province, it’s sufficient for businesses that don’t plan to expand beyond Manitoba.

But, if you plan to expand your business beyond Manitoba, meaning opening offices or hiring staff, you may face additional registration requirements in other provinces. This would involve extra costs and administrative work.

Protection from Liability

One of the primary reasons tradespeople incorporate their businesses is to protect personal assets from business liabilities. Here's how incorporation provides this protection:

• Personal Asset Protection: As a corporation, your personal assets (like your home and car) are separate from your business assets. If your business faces a lawsuit, only the business assets are at risk. This means creditors or legal claims can only go after the corporation's assets, not your personal property.
• Legal Separation: Incorporation creates a legal distinction between you and your business. This means you are not personally liable for business debts or legal issues. If your corporation incurs debt, you won’t be personally responsible for repaying it.

Example: Imagine you’re a contractor and one of your employees accidentally damages a client’s property. Without incorporation, you could be personally sued for damages. However, if your business is incorporated, only the business assets would be at risk, not your personal belongings. This separation provides peace of mind, knowing that your personal finances are protected from business risks.

Tax Advantages

Incorporation can offer significant tax benefits for tradespeople. Here’s how:

Tax Advantages for Canadian Corporation

• Lower Tax Rates: Incorporated businesses often benefit from lower corporate tax rates compared to personal income tax rates. This means more of your earnings can stay in the business, allowing you to reinvest and grow your operations. In Manitoba, the current tax rate for small companies is 9%.
• Income Splitting – not what it used to be!: You can pay dividends to a spouse, which can reduce the overall tax burden. But you should discuss with your accountant as the rules changed.  It’s not as easy as it used to be.  
• Deferral of Taxes: Income earned by a corporation can be left in the company and taxed at a lower rate, allowing you to defer personal taxes until you withdraw the money. This can be especially useful for long-term financial planning.

Example: If you earn $100,000 as a sole proprietor, you might pay a high personal income tax rate. As a corporation, you could leave some of that income in the business, pay a lower corporate tax rate, and defer personal taxes until later. This strategy allows you to manage your tax liabilities more effectively and keep more money in the business for growth.

Conclusion

Whether you’re an electrician, plumber, carpenter or any other trade, Incorporating your business in Manitoba can provide significant benefits, including liability protection and tax advantages. While the federal option may seem more prestigious, your better option will likely be to incorporate provincially. Federal incorporation offers broader protection and flexibility, while provincial incorporation is simpler and more cost-effective for businesses that plan to stay local.

If you're considering incorporation, consult with a lawyer to get personalized advice and ensure you're making the best decision for your business. Contact our law firm in Winnipeg to help you navigate the process and secure your business’s future.  We assist clients all over the province, including Brandon, Portage La Prairie, Thompson, Gimli, The Pas and every small town and municipality in between. We focus on helping tradespeople like you understand the benefits of incorporation and make informed decisions that protect your assets and optimize your tax situation.

By understanding the differences and benefits, you can make an informed decision that best suits your business and personal needs. Incorporation is not just a legal formality; it’s a strategic move to protect your livelihood and maximize your financial benefits. Take the next step towards securing your business's future today.