Should you operate as a Sole Proprietor or Corporation?

As a financial advisor, I often work with self-employed individuals who are trying to decide between setting up a sole proprietorship or incorporating their business. Each option has its pros and cons, and it's important to weigh them carefully before making a decision.

A sole proprietorship is the simplest and most common form of business ownership. It involves operating your business under your own name, without any legal separation between yourself and the business. From a tax perspective, the income earned by the business is treated as personal income and is taxed at the individual tax rate. The main advantage of a sole proprietorship is that it's easy and inexpensive to set up and maintain.

On the other hand, incorporating your business creates a separate legal entity that is distinct from you as an individual. This means that the business can enter into contracts, own assets, and sue or be sued in its own name. From a tax perspective, the corporation is taxed separately from its owners, and the income earned by the corporation is subject to corporate tax rates. The main advantage of incorporating is that it offers greater liability protection and can provide tax benefits for certain types of businesses.

So, which option is right for you? It depends on a variety of factors, including the nature of your business, your personal financial situation, and your long-term goals. For many small businesses, a sole proprietorship is a good starting point, as it's easy and inexpensive to set up and maintain. However, as your business grows and you begin to take on more liability or explore new tax planning strategies, incorporating may become a more attractive option.

Ultimately, the decision to set up a sole proprietorship or incorporate your business is a complex one that requires careful consideration. As a financial advisor, I'm here along with your accountant and lawyer, to help you navigate the process and make informed decisions that will help you achieve your goals and protect your assets. If you're not sure which option is right for you, don't hesitate to reach out for guidance.

https://www.canadalife.com/blog/self-employed/sole-proprietor-vs-corporation.html

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.