Category: Information

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Advantages and Disadvantages of Incorporation

Running your own business takes time, effort, and requires informed decision making.  Incorporation  is one of those decisions that should never be made hastily.  You need to do your homework and weigh the pros and cons.

One immediate advantage for a profitable small business is a potentially lower tax rate.  If the corporation meets the criteria of a Canadian-controlled private corporation (CCPC) then it qualifies for a much lower rate of income tax.  To ensure that the corporation will be able to take advantage of this, you should consult with both your accountant and lawyer for the initial set up.

One of the biggest advantages of incorporating is limited liability.  This means that as a general rule, the shareholders are not responsible for the corporation’s debts.  A shareholder cannot be sued by a creditor of the corporation unless the shareholder has provided a personal guarantee for debt(s) of the company.  You need to be aware that this only holds true assuming that a shareholder does not have another relationship with the corporation such as also being a director.  Incorporating a company makes it subject to a variety of regulations in addition to those imposed on proprietorships and partnerships.

As far as business structure goes, incorporation has the highest setup and administrative costs and  requires extensive record keeping.  It does make raising capital easier as there are options such as issuing bonds or additional shares.  Although there is always the risk of shareholder or director conflicts, ownership of a corporation is easily transferable and a corporation will continue to live on even after the deaths of its shareholders and directors.

Other tax advantages are the capital gains deduction and private health service plans. 

I will delve into these areas in future posts. If you would like further information, please call the office at 705-876-6011

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Hello

Here is a little bit about myself…

I am a Chartered Professional Accountant and a Senior Partner in Cody & James CPAs.  I obtained my Accounting Designation in 1998 and earned a diploma in Computer Programming and System Analysis in 1996.  I have been in the Accounting profession for more than twenty years, starting out employed in a corporate setting as a liaise from the IT to Finance departments.  I later went out as a sole proprietor, branching out into both Accounting and Computer Programming.  I finally joined forces with another CPA to form a Professional Accounting Corporation, but I still keep a hand in Application Development.  When combined, my experience is a unique blend of financial knowledge and application development.

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10 Components of a Good Reporting System

Proper planning and control are two major benefits you will receive for having a good reporting system.  If reporting is available to your management at the proper time, current activities can be properly monitored and controlled and necessary corrective actions may also be taken in time.  Basic principles are followed to make a reporting system more effective.  Such principles are outlined below.

  1. Information Flow:  Information should flow freely from the proper place to the correct end user of the report. It should be presented in a timely format to assist planning and co-ordination.  The flow of report should not be not be interrupted because the flow of information is constant.  The flow of information may be in many directions within an organization as orders, instructions, plans,  etc. move in this manner.
  2. Accurate Information:  Reports should contain only accurate information. If bad data is included in the report, it may lead to making bad decisions. Only accurate information helps in clearly understanding the situation.  At the same time, the presentation of accurate information in the report should not be a costly proposition and should never result in the delay in the presentation of report.
  3. Proper Timing:  The reason a report exists is to control unfavourable activities.  A report should be submitted at the required time at any cost.  If this does not happen, there is no use in preparing the report.  In addition, the time and efforts used for preparing the report are also a waste. The timing of routine reporting should be strictly adhered to.  The absence of information at required time contributes to making wrong decisions.
  4. Relevant Information:  Only relevant information should be included in the report. The inclusion of irrelevant information is both confusing and a waste not to mention the increase the time taken to prepare the report.
  5. Basis of Comparison:  The information provided by reports will be helpful when it includes a provision to compare with past figures, standards, or objectives. The trend of a variation can only be found a comparison.  The requirement of corrective action is highlighted through the review of comparative information.
  6. Reports should be Clear and Simple:  The purpose of preparing a report is to help the management in planning, coordinating and controlling. The report should be presented in straightforward terms that can be clearly understood. The report should be presented in a manner that is it is easy for the readers to focus on unfavourable issues and arrive at a conclusion.  The information in a report is should be brief, complete, clear, and simple.
  7. Cost:  Management should expect to incur expenses with regard to the preparation of the report. Such expenses should be in proportion to the benefits derived from the report.  Ideally, more benefits should be available than the expenses incurred.
  8. Visual Reporting:  A good reporting system will have visual reporting. Research shows that visual reporting with the aid of graphs, charts, and diagrams in comparison to descriptive reporting attracts the eye more quickly and leaves a lasting impression on the mind of the users.
  9. Principle of Consistency:  Consistency is adhered to in a good reporting system. Formats should not frequently be changed and any changes should be justified.
  10. Proper Scheduling :  Scheduling should be established to minimize the burden placed on staff. Employees must be given sufficient time to do the work properly, but the lag time between the collection of data and the finished report should not be great.