Sole Proprietor Vs Corporation
A sole proprietor is you. You may run a business (or several businesses) and run them as yourself. For tax purposes, it’s you. There is no separate legal entity for your business.
On the other hand, a corporation is a distinct legal entity and is taxed independently of its shareholders. It can have more than one owner and shares in the corporation can be bought or sold.
The key difference between them is that as a sole proprietor, you are the business. As a corporation, the business is a separate entity.
Which one should you have? Read on to learn more.
“A sole proprietorship is the simplest kind of business structure.”
Canada Revenue Agency
Benefits of Sole Proprietorships
Sole proprietorships are best for when you’re starting out. You don’t have as many administrative duties or costs and you can often manage the business by yourself. Your tax obligations are simpler. And if you don’t make much, your taxes will be lower than if you started out with a corporation. You can always restructure your business if it’s successful.
Benefits of Incorporating
Corporations have far more reporting requirements and paperwork than a sole proprietorship. Since a corporation is a distinct entity from its ownership, it can potentially shelter you from liabilities. Once you start earning a certain amount of income, you’ll pay more tax if you remain a sole proprietorship. That’s where a good accountant comes in. In a nutshell, the benefits of incorporating are to limit liability and get the best possible tax structure. It also opens up many fundraising opportunities for expansion that just aren’t possible with a sole proprietorship.
Your Small Business Journey
What we recommend is to begin your small business journey as a sole proprietorship. If and when you start making money, hire a good accountant to help you manage your company’s finances. Once you reach the point where you’d pay less tax as a corporation, your accountant will advise you of the next steps. That way, you’re always getting the best possible tax savings.