The Beat Spring 2020 Volume 5, Issue1

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To Incorporate orNot to Incorporate?Here is a question we’ve heard from many members: Is it better to start asole proprietorship or incorporate? Consult the table below for a comparisonand check with an accountant and/or lawyer for a more detailed overview.For more details please see the CRA Website.28the beat le rythme ỳ
SOLEPROPRIETORSHIPINCORPORATEDCOMPANYSet up costsSimple set up with low or no cost.Higher set up costs.Administrative costsCosts are normally lowerthan a corporation.More administrative work isneeded such as annual reporting tothe corporate registry and corporatetax returns.LossesIf your business faces a slump andloses money, these can be writtenoff against your income.Business losses cannot be writtenoff against other income ofshareholder(s).ControlAs a sole proprietor, “the buck stopshere”, ie, you are in charge of alldecision-making and in keeping theprofit for yourself.Control depends largely on yourbusiness’s structure and you willneed to make decisions aboutdifferent class shares, who yourshareholders are, and how muchcontrol they have.LiabilityYou are liable for all debts andliabilities of your business;this includes having your businessand personal assets at risk if youare sued.The liability of shareholders islimited to the amount invested intheir shares in the corporation;personal assets are protected fromlawsuits against the company.TaxesYou will likely pay highertaxes than if you areincorporated.Corporations pay a lower tax rateon the first $500,000 of businessincome; This tax advantage ismainly a deferral of taxes until theprofits are paid to the shareholder.If all the profits are paid out tothe shareholder(s), they will betaxed entirely as income of theshareholder.Selling the businessWhen you sell your business,you can sell assets as well as“goodwill”. Any gains will beincluded in your personal tax return.There is no capital gains exemption.On the sale of shares of a smallbusiness that is incorporated,there’s a lifetime capital gainsexemption that is currently over$800,000.the beat le rythme ỳ 29
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The Beat Spring 2020 Volume 5, Issue1

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