Question: I am starting up a business. Should I incorporate or operate as a sole proprietor?
Answer: Deciding to incorporate or operate as a sole proprietor can have a huge impact on your
business and each have their own advantages and disadvantages which you will want to weigh before
choosing your business structure. Here are two considerations that should be made before making this
Liability – As a sole proprietor, you’ll be held personally liable for anything that occurs in your business.
Corporations, on the other hand, enjoy limited liability. In most cases, if someone files a lawsuit against
your business, your liability is limited to the amount you have invested in the corporation.
Ease of formation – A sole proprietorship is the easiest business entity to set up. If you operate under
your own name, you don’t even have to register your business. Conversely, corporations are more
legally complex and, therefore, more expensive and time consuming to form.
Administration – Sole proprietorships are less costly to administer; you simply declare your business
income on your personal tax return. In contrast, administering a corporation is more expensive. You
must file separate annual tax returns and maintain a corporate minute book.
As this is not an exhaustive list of considerations, you should discuss your situation with your accountant
and lawyer before making this decision.
Copyright © 2010 – 2016 R. Charles Furnivall, C.P.A, C.A.