Incorporation vs.soleproprietorship

Incorporation vs. sole proprietorship: how should you structure your business?

There are many form so fbusiness organization open to you ,but twoof the most commonare the sole proprietorship and the incorporated business.
Both can apply to small business; and choosing the one that is best for you depends sony our personal situation andt he growth-stage of your business.

Sole proprietorship

In a soleproprietorship, the business and the ownerare consider edoneentity.The owner is fully responsible for all debts and obligations related to the business; that means that creditors can make a claim against the business owner’ spersonalassets, as well as the business assets, to settle any debts.
Pros:

  • Easy to register
  • Less red-tape
  • Business owner has full control
  • Cheaper to start business
  • May be tax advantages
  • Business owner gets all profits directly

Cons:

  • Business owner assumes full liability
  • May be tax disadvantages (if business is successful you may go up a tax bracket)
  • Uncertainty when business owner is unavailable
  • you need startup money it can be difficult to raise; same when you need financing to grow the business

Incorporation

When a business is incorporated, it becomes a separate entity to the owner; this means the owner is not personally liable for any debts.

Pros:

  • No personal liability for business owner
  • May be tax advantages (if qualify for small business tax rate)
  • Added credibilityeasier to raise start-up funds
  • Can transfer ownership of business

Cons:

  • More redtape
  • Can be expensive to incorporate
  • Greater paperburden

Issues to consider:

  • Simplicity: sole proprietorship is a simpler business model.
  • Tax: there could be tax benefits to incorporating your business
  • Cost: it usually costs more to incorporate and keep separate books
  • Liability: there can be greater liability exposure to the owner of a sole proprietorship.

Not sure? Ask someone!

While there is no single answer to what is right for you and your business, you should be aware of the issues. While you can incorporate without the help of a professional, it is usually not advisable. Having a lawyer and/or accountant go over what will work best in your situation will place your business on a better foundation.

Post Date: August 19, 2019

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