Before You Incorporate: Two Conversations to Have First

If you’ve been running your business as a sole proprietor and the word “incorporate” keeps coming up, maybe at networking events, from your bookkeeper, or a podcast you listened to. Let’s break down who can help you make decision and how I want to make this easier for you.

Should I incorporate?" is one question, but the answer has two parts. Most founders only hear one of them (a confident-sounding answer based on half the picture) and end up either incorporating when they shouldn't, or avoiding it when they should.

Here's the fix: get both halves before you decide. There are two people whose job it is to give them to you.

I’m a business lawyer. Your first call is simple it’s either an accountant or a lawyer. Both halves of the decision belong somewhere, and whichever one of us you call first will quickly tell you to go talk to the other.

“Should I Incorporate?” Has Two Halves

Most founders walk into this question thinking it’s a financial decision. It’s that, but it’s also a legal one. Depending on what your business actually does, the legal half can be the loudest factor in the room.

The legal half: what your risk and liability picture looks like, and whether you need a separate legal entity to protect what you’re building.

The financial half: whether the tax math works for you, how much you earn, what you can leave inside the company, and whether the savings outpace the additional costs of running a corporation.

The mistake most owners make is asking only the financial question. They go to their accountant, get told “the numbers don’t make sense yet,” and walk away thinking the answer is no, when their actual liability exposure has been screaming yes for two years. Or the reverse: they incorporate after a casual chat with a friend, without ever running the numbers, and end up paying for a corporate structure they didn’t need.

Both halves matter. Here’s what each one is.

The Legal Half: Your Lawyer’s Question

The legal half is mine (or your lawyer’s). The question I help with: does your business have the kind of risk profile and liability exposure that calls for a separate legal entity?

I look at things like the nature of your work and your industry’s risk profile. Whether your contracts carry real liability exposure. Whether you’re in regulated or licensed work. Whether you hold significant assets, your own or other people’s. Whether the kind of clients and projects you take on involve scenarios where one bad day could come back at you personally. What your long-term plans and what exit options would you like to plan for.

For some businesses, the answer here is loud and obvious. If you’re in a high-risk industry, working with significant liability exposure, or holding meaningful assets, I’m probably going to urge you to incorporate, before we’ve even gotten to the numbers. In those cases, the question isn’t if, it’s when. That’s where I send you to talk to your accountant, not to revisit whether to incorporate, but to figure out the right timing, share structure, and tax setup so you don’t leave money on the table on the way in.

The Financial Half: Your CPA’s Question

The financial half belongs to your accountant or CPA. Their question is straightforward: does the math actually work?

That means looking at things like how much you’re earning, how much you need to draw out for personal expenses, whether you can leave money in the company, and whether the tax savings will outpace the additional costs of running a corporation (annual filings, T2 returns, separate bookkeeping, higher accounting fees).

A good accountant will ask you blunt questions. What did you net last year? What do you actually need to live on? Are you planning to sell the business someday, or run it until you’re done? They’ll run the math and tell you the truth, which, in flexible cases, might be “not yet” or “yes, but not the way you were thinking.” In clearer cases, it’ll be “let’s do this, and here’s how to time it.”

How the Two Halves Combine

Here’s where it gets interesting.

If your risk profile is high, regulated industry, significant liability, real personal exposure if something goes wrong, that’s almost always a strong yes on incorporating, regardless of what the numbers say. The legal protection is the dominant factor. You incorporate because you need to, and your accountant helps you do it in a way that’s tax-smart.

If your risk profile is low, a service-based business with manageable contracts, contained liability, no licensing issues, the legal half may not drive the decision. That’s where the financial side starts to weigh more heavily. So do administrative factors: the cost of annual filings, the time it takes to maintain corporate records, whether you actually want to deal with separate bookkeeping for the company. In those cases, your accountant’s perspective is doing most of the work.

Either way, both conversations belong in the call. I’ve seen owners get burned by skipping one as much as the other.

Once You’ve Decided: What Your Lawyer Actually Does

Once you’ve decided to incorporate, the legal setup itself is mine (or your lawyer’s) and only mine.

That means: choosing the right type of entity (federal versus provincial, a professional corporation if you’re regulated); drafting your articles and bylaws; putting together a shareholder agreement if there’s more than one of you; thinking through what shares get issued to whom and why; setting up your minute book; and actually filing the incorporation.

That last one, who owns the shares, matters more than founders realize. Whether shares go to you alone, you and your spouse, you and a family trust, has implications you can’t easily undo later. I’ve watched too many people incorporate quickly through an online service, then come back two years in needing a restructuring that costs ten times what doing it properly the first time would have.

A Note for BC Business Owners: Why the Setup Itself Has to Be the Lawyer’s Job

This question comes up often enough that I want to address it directly. People sometimes ask whether the accountant who told them to incorporate can also handle the actual setup, since they already know the situation, the numbers, and what makes sense.

In BC and most Canadian provinces (except Quebec), the answer isn’t a preference, it’s the law.

Drafting documents that create or affect legal rights and obligations is the practice of law. That includes your articles of incorporation, your bylaws, your shareholder agreement, your share certificates, and the records that make up your minute book. The work is meant for your lawyer. An accountant or other professional who drafts those documents for a fee, no matter how knowledgeable they are about the tax piece, is operating outside their scope. If something goes wrong with documents prepared outside of scope, there’s no professional liability coverage waiting to fix it for you.

Something that genuinely confuses people in British Columbia is that our notaries can do far more than notaries in other provinces. They may handle real estate transfers, mortgages, certain wills, powers of attorney, and a long list of non-contentious legal work. So, a lot of business owners assume their notary can also set up their corporation. They can’t; incorporation isn’t within the notary scope.

The other route people are tempted by is the online incorporation services advertised heavily in BC. These tools will file a corporation for you. They will not structure it. Your share classes will be a generic template. Your minute book will be empty or filled with fill-in-the-blank documents that may not actually fit your situation. Your shareholder agreement may be missing entirely, or stripped down to something that won’t hold up if you ever need it to. I see the cleanup work from this kind of incorporation more often than I’d like, owners coming back two years in, needing to undo a structure that didn’t fit and rebuild one that does, at many times the cost of doing it properly the first time.

The practical reason this matters: if your share issuance, share structure, or shareholder agreement is defective, your corporation has a legal weakness that doesn’t show up until you need everything to be tight. A buyer’s counsel doing diligence on a future acquisition will find it. The CRA, in some situations, can find it. A future investor will absolutely find it. And the fix is always more expensive than the original setup would have been.

So when I say the legal half belongs to the lawyer and the financial half to the CPA, that isn’t me protecting turf. It’s the structure of the rules in BC and most Canadian provinces.

Other Advisors You’ll Want to Talk With

Around the Same Time: Your Insurance Broker

When you incorporate, your insurance picture changes. Some of your personal policies may no longer respond to claims that arise out of your business. You may need new commercial coverage in the corporation’s name. If you carry professional liability, your broker needs to know there’s now a corporate insured. If you’re running things from home, your home policy needs revisiting.

It’s a good idea to call your broker as soon as the corporation is a real plan, not after the fact.

Soon After: Your Financial Advisor

This conversation is about you, not the business.

Once you have a corporation, you have new questions. Should you pay yourself salary, dividends, or a mix? Should you leave retained earnings in the company? Do you need a holdco for asset protection or estate planning? How do RRSP contributions still fit? Does it still make sense to max your TFSA, or are corporate-class investments better for you now?

Your financial advisor’s job is to make sure your personal financial life (retirement, your family’s security, and your eventual exit) is built around the new structure rather than scrambled by it.

Where People Get Stuck

The most common mistake I see isn’t a legal one, it’s a missing-conversation one. Founders ask only the lawyer or only the accountant, get only half the picture, and act on it. Or they ask one of us, hear what they wanted to hear, and stop there.

If you take one thing from this: the legal half (your risk profile and liability exposure) is your lawyer’s question. The financial half (the tax math) is your CPA’s question. You need both before you make the call, and the order doesn’t matter as much, whichever one of us you start with, the other one is the next conversation.

You don’t have to figure this out alone. The right conversations, in either order, can save you money, time, and a lot of second-guessing.

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This post is general information about the role of professional advisors, not legal, tax, or financial advice for any specific situation. If you’d like to talk through your own situation, get in touch with Encino Law.

Mariela “Mari” Gutierrez is a business lawyer and the founder of Encino Law. She helps founders and service-based businesses get the legal side of their business right, from incorporations and contracts to the kind of ongoing advice that comes with running and growing.