I spoke about the need for a lawyer in esports, an accountant in esports and esports project managers. I’ve also spoken about esports pitch decks & selling your esports business. However, I have never spoken about those starting out and whether you should incorporate or not.
Today’s post, I’ll speak about the pros and cons of incorporating your business in esports. Whether you are just starting out or converting a business, it’s important to understand both sides of incorporating. Please note, this isn’t legal or tax advice but my personal experiences. Always consult a lawyer or accountant!
Pros of incorporating in esports:
- Limited Liability
- Corporations can enter into contracts, own property and assets. You entering into a contract can be pretty daunting but on behalf of a corporation can put yourself at ease (somewhat). Always consult a lawyer before signing anything!
- Protecting your personal assets
- This is important if your corporation goes bankrupt it protects your personal assets.
- If you were to get sued it’s the company that gets sued and not yourself. (I am not a lawyer so there may be limitations on this).
- More credibility (potentially)
- Billy bob’s consulting inc vs your name. It can lend some credibility to potential customers. Ie invoicing from an actual corporate account rather than your own personal account.
- Lower tax rates
- Corporations get taxed at a lower rate than people. However, if you’re just going to pay yourself directly from your corporation it’ll be taxed at the same rate. Be sure to take advantage of tax writeoffs (that are reasonable in the eyes of the CRA) and other business expenses.
- Easier access to capital (depends on how well you can raise money. Check out my pitch deck tips!
- In theory you can raise capital easier with debt or equity. In reality it’s quite hard if you’re starting out as a traditional bank loan is seen as extremely risky in esports. You’d have to be diversified and have some great cashflows to get a traditional bank loan.
- For equity, it’s still quite challenging as you’d need to meet
- Lifetime capital gains exemption
- Incorporation is pretty fast
- It takes a few days. You can either register yourself, get a lawyer to do it or go to a small business center than can help you. Our first corporation was done by our lawyer.
Cons of incorporating in esports:
- There’s a lot more paperwork from a corporation standpoint. You need to file yearly or even quarterly depending on your income. The taxes are way more complex than a personal tax return with a t4 (that’s why I recommend hiring an accountant)
- You need to charge HST/GST over a certain amount. Familiarize yourself with GST/HST rules and registration over at the CRA’s website!
- There are some things you need to fill out even if you register the corporation yourself. Ie shares, voting rights, meeting minutes and all that. It’s important to keep up to date.
- Dealing with more complex tax situations
- You have to figure out what the rules are for payments if you’re dealing internationally and getting paid by entities that may or may not be in the USA. For example, your supplier has a head office in Canada and you’re registered for HST. You have to charge for HST given your revenues are high enough. If they don’t have an office in Canada but operate elsewhere you may have to or may not.
- More upfront and ongoing costs
- Incorporating is around $200 federally + the provincial fee (around $160 I believe). So you’re looking at around $400 for incorporating. Make sure you know what you’re doing or consult a professional. If you want to go with a lawyer it’ll be around $800 – $1000. It all depends on the time and effort. Accountants can incorporate as well. Each have their own pros and cons.
- Make sure you do a NUANS search of similarly named corporations so you don’t run into legal issues going forward. Example Billy bob’s esports vs Bob Billy esports shop is super confusing and similar. Make sure you don’t run into that!
- Corporate formalities
- Making sure you keep up to date accounting records, meeting minutes, corporate regulations all up to date as necessary takes time and effort.
So there you have it. A quick article on why you should potentially incorporate your esports business. If you have any questions just leave a comment below or contact me directly.