Should I Incorporate My Small Business?

There are two common setups for small-businesses:

Sole Proprietorship
A sole proprietorship is an individual operating business without incorporation. The main advantages include a simple and cost-effective setup and the utilization of losses in the business with other income of the proprietor. Disadvantages include virtually unlimited liability, higher taxes in the case of a profitable business, and the risk of discontinuity of business on the proprietor’s death.

A corporation is created by an application to either the federal or provincial government. The main advantages of incorporating include limited liability, lower tax rates, a shareholder’s ability to utilize lifetime capital gains, exemption from the sale of shares of a qualifying small-business corporation, and continuity of the business after the death of a shareholder. Disadvantages include higher setup and administration costs, and the inability for business losses to be written off against the shareholder’s other income.

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