New Business – Corporation vs. Sole proprietorship

Should I incorporate my business or not? This is a typical question usually asked by a new entrepreneurs. Every business is different and thus are its legal and taxation requirements. Here are some of the factors you should take into consideration before making a decision on whether or not to incorporate your business. 

CORPORATIONS

Corporation is a legal entity, separate from its shareholders. The shareholder of a corporation is not personally liable for debts, obligations or acts of the corporation.

Benefits of incorporating your business:

1. Limited Liability - you are not personally liable for the activities of the corporation as corporation is treated as a separate legal entity.
2. Ownership is transferable.
3. Continuous existence – a better option for Estate Planning.
4. Tax advantages - We strongly suggest you consult your accountant on tax matters.

Points to consider before incorporating your business:

1. Costs - it is bit expensive to incorporate a business.
2. Regulations - corporations are closely regulated.
3. Corporate records – you will have to file annual returns with government
4. Other corporate issues – you will have to deal with issues involving conflict between shareholders and directors.

SOLE PROPRIETORSHIP

As a sole proprietor you are personally liable for all debts and obligations of your business, however, it does not mean that you shall never go for sole proprietorship. In fact most of the small businesses at initial stage prefers sole proprietorship because of start-up costs of the corporation and expenses associated with maintaining it.

Advantages of sole proprietorship:

1. Easy and inexpensive to form a sole proprietorship, just register your business name.
2. Comparatively less regulatory supervision and compliance.
3. Direct control over decision making.
4. Tax advantages – For your particular needs, we strongly suggest you consult your accountant on tax matters.

Disadvantages:

1. Unlimited liability – you will be personally liable for all your business debts.
2. Estate Planning and continuity of business is not easy.
3. Difficulties raising capital on your own.

This blog is not a legal advice but provided for basic information.

At GSS LAW FIRM, we understand that every business situation is unique and needs a comprehensive assessment before we can suggest the best legal structure for your business. Therefore to incorporate your business or to discuss any business related legal issue please book an appointment with us.