The definition of a small business corporation will depend on what country you are doing business in and can go by different names. As it pertains to Canada it means that the business that is going to be incorporated will be a private corporation that is Canadian controlled.

There are rules and regulations that qualify a business as a small business corporation. The major one being that 90% of its assets at fair market value must be:

  • Used for business that is active in Canada by the Corporation or a corporation that is related to it.
  • That the shares of the business or any debts of corporations that are connected with the small corporation or a combination of both of these.

Anyone that is going to incorporate their small business has to fully understand what this type of undertaking means. They have to know that the business is going to qualify and they have to know the rules and regulations that govern it. This is very important in order for the business to be able to operate legally and it can be very important for tax purposes.

When one is going to start a small business corporation it is wise to get a lawyer to attend to this matter. This way it ensures that it is done properly and once done then the lawyer ensures that the articles of incorporation are drafted and these become the legal documents for the business.

Sometimes business owners do not want to incorporate their business. This could be for tax reasons or they don’t feel that it is necessary to go to this extra expense. There are pros and cons to incorporating a small business and the new business owner should study these carefully. An incorporated business in Canada may have certain protection rights when it comes to liabilities, for example.