Sole Proprietorship vs Corporation

Many people want to know if they should incorporate or start a sole proprietorship (business). As an accountant, here in Hamilton, Ontario, I want to help people decide. I want to focus on some of the many reasons to incorporate; For the most part, whether you have a business or corporation, the concept of running a business is the same. So why incorporate?
Reasons for incorporation
My reasons are for those who are starting up a small business or thinking of transferring to a corporation. Yes, you can transfer your small business to a corporation, so you don’t need to start one now. The larger companies are already incorporated and have different reasons for creating, merging, and selling corporations. I want to focus on you.
Here are some of the reasons for incorporating.
Taxes – If you are choosing to keep the profits in the business, then using a corporation will allow you to keep most of it because of the lower tax rate (approximately 13% tax rate in Ontario). If you pull out all the money of the corporation in forms of salaries or dividends, and your personal tax bracket is already at 42%, then the taxes of the profits of a sole proprietorship or the salaries and dividends of the corporation start at that rate. Leave the money in the corporation for a later date. You can always payout the after-tax profits with dividends. There are other tax advantages that can help such as personal use of a car for business purposes.
Limited liability – Some believe that corporations create a shield between them and possible lawsuits. Being incorporated doesn’t stop potential lawsuits but having a corporation and insurance does create some protection against the loss. There are times when this protection doesn’t apply. Here are some thoughts of items that hold the director liable:
• Any personally guaranteed loans or mortgages
• Any frauds committed
• Source deductions for payroll
• HST filings and remittances
Marketing – You can lock in your business name when registering the name as the corporation. Some companies refuse to deal with businesses that are not incorporated. This opens that market.
Legacy – If the business continues after you are finished with it, it has the business name that you created.
Investors/partners – If you wish to add investors, it’s easy to sell shares, even non-voting shares.
There are more reasons and I hope this information helps. Brought to you by your friendly neighborhood accountant.
Keep it simple!

Business ownership mind map concept