OWNERSHIP TRANSFER: Advantages of Incorporation
Contact Neufeld Legal for your incorporation legal work at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
Incorporation significantly eases the future transfer of ownership by transforming the business into a separate legal entity whose ownership is represented by transferable shares. This separation and structure provide several key advantages compared to transferring a non-incorporated business (like a sole proprietorship or partnership), which typically involves selling the entire collection of business assets and liabilities.
Ownership is Divided into Shares
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Simple Transfer: A corporation's ownership is divided into shares of stock. Transferring ownership simply requires the current owner to sell or gift their shares to the new owner.
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Partial Sale: Shares allow for a partial transfer of ownership. For instance, a founder can sell 10% of the business by selling 10% of their shares without disrupting the business operations or assets. This is much more complex and disruptive in a sole proprietorship.
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Clear Valuation: Shares provide a clear, quantifiable unit for valuation.
Business Continuity (Perpetual Existence)
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Independent Entity: A corporation has a "perpetual existence" = it's a separate legal entity from its owners. It can continue to exist indefinitely, regardless of changes in shareholders, directors, or management [more on perpetual existence].
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Seamless Transition: When an owner sells their shares, the corporation, its contracts, bank accounts, and assets remain with the business. The new owner simply steps into the role of a shareholder, ensuring a seamless transition and continuity of operations. In contrast, a sole proprietorship ceases to exist when the owner retires or dies, making the transfer a more complicated process of winding up the old business and setting up a new one.
Attractive to Investors and Purchasers
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Selling Shares vs. Selling Assets: A buyer often prefers to purchase the shares of an existing, functioning corporation (a "share sale") rather than purchasing all of its individual assets and assuming new liability (an "asset sale"). A share sale keeps all existing contracts, permits, and business relationships intact under the corporate entity.
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Estate Planning: The existence of defined, transferable shares simplifies estate planning. An owner can easily pass shares on to heirs, set up trusts, or use specialized share structures (like "estate freezes") to facilitate intergenerational wealth transfer and succession planning.
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Tax Benefits for Seller: In many jurisdictions, the sale of shares in a qualifying corporation may be eligible for significant capital gains tax exemptions, making the sale more financially attractive to the current owner.
By codifying ownership into standardized, divisible, and legally recognized shares within a separate legal entity, incorporation dramatically streamlines the process of bringing on new investors, transferring ownership to a partner, or selling the entire business.
So if you are looking to incorporate a new corporation or deal with the corporate legalities impacting your company, contact our law firm to schedule a confidential consultation with a lawyer experienced in the legal intricacies of business incorporation and commercial business development at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or via email at Chris@NeufeldLegal.com.
