When starting a new business venture one of the first decisions that has to be made is the type of legal structure best suits the needs of the new business. In Canada there are essentially two choices – business registration (sole proprietorship or partnership/unincorporated entity) or incorporation.
Like many small business decisions, the answer in not necessarily straightforward and depends on the business owner’s specific set of circumstances:
When deciding on which structure there are several questions that a small business owner should consider:
- Does the new business venture need limited liability? Or will insurance be an adequate replacement?
- Do you have plans to build an enduring business which you might want to transfer upon your retirement or death?
- Are you willing and able to spend additional fees on incorporation costs?
- Are you comfortable with the increased reporting requirements for a corporation as you will mostly likely require the services of an accountant and possibly a lawyer?
- As the owner/shareholder of the corporation are you able to leave funds in the business or will you need to withdraw all of the profits of the business for living expenses?
A corporation is a legal entity whose shareholders are separate from the business. Setting up a corporation is more complex than a business registration – decisions have to be made regarding the jurisdiction of the corporation
- Limited Liability
- Lower Tax Breaks
- Raising Money is easier (better access to grants and capitals)
- Business Name is protected
- Increased Paperwork
- Less Tax Flexibility
- Incorporation Costs
- On-going Costs
Registered businesses are simply an extension of the individual and as such the regulatory and tax obligations are relatively minimal. Setting up a registered business is a simple and inexpensive process. The owner is responsible for the debts of the business and pays taxes (or can deduct losses) on their personal tax return.
If you feel that you are on the fence on which option, do your research and find what works for you. A registered business can decide to incorporate at any time, although if you do decide to take the next step and incorporate. Sometimes, it might make more sense to wait and see how the business evolves.
Register your business with Impact!