Business registration is one of the best things you can do for your establishment. It prevents legal troubles, makes your business more reputable, and helps attract employees, among many things.

Unfortunately, while it does have a rather straightforward process, many people still struggle to understand how it works. One particular misconception among business owners is that a Master Business License and incorporation are the same, but in reality, they’re not. While they do carry similarities, their benefits and procedures have numerous differences.

This article will discuss what each option means for your business as well as its pros and cons to help you decide which is the best option to choose for your establishment.

What’s a Master Business License?

A Master Business License (MBL), also known as a business license, is a document that specifies details about your business. These include its business number, address, name, and a brief description of the activities the business will undertake.

The license may also contain details of the type of entity your business belongs to, whether it’s a sole proprietorship or partnership.

If your business belongs to any of these categories, MBL essentially serves as your business name registration in your province or state and often provides you with a registration number.

What does incorporating mean?

Incorporating is essentially the process of creating a corporation, either from scratch or through an existing business. While a corporation can get a Master's Business License, it’s often not a requirement in any part of Canada. It is, however, necessary if you want to create a corporation while operating a business under a name different from the corporation. 

In other words, each option caters to different business entity types. A Master Business License is for sole proprietorship and partnership, while incorporation is specifically for corporations.

Similarities between an MBL and incorporation

While each option has different purposes, you may find some similarities as well.

Here’s a look at these similarities:

• Both options allow you to operate within the province or state: Before any business, regardless of type, operates within a province or state, the owner must first register the business either by getting an MBL or incorporation. So, both options are similar in the way that they allow you to operate a business. 

• You can close a corporation or cancel a Master Business license: If a business owner wants to stop doing business or operate under a different name, they typically need to cancel their MBL. That’s one of the few things most owners know about a business name registration. But one thing you may not know is that you can also do the same to a corporation, though it may consist of more steps. 

• Both options give you the ability to open a business bank account: Opening a business bank account is one of the essential steps to starting a business, as it allows you to manage your finances separate from your account. You also can get loans for funds, not to mention an account is typically necessary to file taxes. Fortunately, both options allow you to open an account. 

• You can hire any number of employees with both options: You can hire employees regardless of whether you go through incorporation or an MBL. There’s no limit or restriction as to how many employees you can hire. Keep in mind, however, that hiring employees comes with reporting and tax requirements. 

• Both are available even for a sole owner: A common misconception with incorporation is that you must register the business with a partner. After all, ‘corporate’ means being part of a group, the members being the shareholders or board of directors. However, while you can indeed register a business with other people, you can also incorporate an establishment alone without any partner. 

Differences between a Master Business License and incorporation

The previous section tackled the similarities between each option. This time, you’ll take a look at their differences:

• Incorporation will protect your business name; an MBL doesn’t

A business name registration is often not enough to claim the business name as yours and yours only. Even with an MBL, you cannot stop any other establishment from operating under a name identical or similar to yours. However, if you create your business through incorporation, you can take legal action against those who operate under your name. 

• Incorporation offers liability protection; an MBL doesn’t

Usually, when you take a loan under the name of your sole proprietorship or partnership, you and your partners, if there are any, will be held responsible for the liability. 

However, if you create the business through incorporation, the lender can only hold the liability against the corporation itself. You, as the owner, are a separate entity, which means you won’t have to deal with the liability yourself. 

• An MBL does not require you to be a Canadian resident

In Ontario, anyone can get an MBL as long as they’re 18 years or older. However, if you want to register through incorporation, you must be a permanent resident of the country. 

This is one of the few advantages business name registrations have over incorporation.

• Incorporation provides several tax advantages

In most countries, including Canada, corporations have several tax advantages. One, the corporate tax rate is lower than the taxes on partnerships and sole proprietorships. 

Two, corporations can receive income whenever they want, unlike other business entities when you have to take income at a specific date. In other words, you can time it when the tax rate is low. And lastly, you can receive income from your corporation in the form of dividends instead of salary, which allows you to effectively lower your tax bill.

• An MBL expires every five years

When you register for an MBL in Canada, you have to renew the license five years from the date of registration. Otherwise, its effects will stop. But in the case of incorporation, you don’t have to get a license, meaning there’s no need to worry about renewing. 

• Incorporation offers ways to raise cash for your business

Obtaining funds is an essential part of managing a business. Unfortunately, it can be difficult to raise cash for an establishment. But much like with taxes, it’s much easier to raise cash for a corporation. This is because there are financial grants made available by the provincial and federal governments to corporations. 

Final words

Registering a business may be straightforward, but there are several decisions you must make throughout the process. For starters, you must decide on the name of your business. After that, you need to decide on your registration, whether you’ll go through incorporation, which has several benefits, or you’ll settle for a Master's Business License, which is less stressful. Either way, this article should help you decide which is best for your company.