Sole Proprietorship vs Corporation

Which one is better: a sole proprietorship or corporation?

The answer to that question entirely relies on your individual business.

A sole proprietorship requires less difficulty and is more cost efficient to register. In contrast, a corporation requires a greater financial cost to set up due to the need to employ legal aids such as lawyers and accountants.

In some instances, you just started a business in your backyard and the extra costs to set up and run a corporation can be quite taxing on one’s current financial position.

A sole proprietorship grants unlimited personal liability, which implies you are solely responsible for all the cost and debts of the sole proprietorship. In turn a corporation possesses limited liability, which means all your personal assets are protected even if the corporation defaults.

If your sole proprietorship incurs a loss in that tax year, it is possible to offset that loss against other potential income sources such as employment income. The result would be a decrease in paid taxes. If your corporation qualifies for a small business deduction your corporation will pay a tax rate ranging as low as 9%.

When making the choice between these two circumstances, it is important to consider the needs of your business.