To incorporate or not? That is the question.

Posted: January 05, 2010 | Last Updated: February 06, 2016

Posted: January 5, 2010

Written by: Brant Harvey

Small businesses provide countless goods and services desired by the customers in their communities.  Hard work , an entrepreneurial spirit, and the occasional stroke of good luck may put the sole proprietors of these small businesses at a crossroads.  Simply stated, the sole proprietor may be asking whether or not the time has come to incorporate their small business.

The decision to incorporate is an important one.  Factors that should be taken into account  include the ease of organization of any new business structure, the expected length of the life of the business, potential financing and management issues, liability for the debts of the business, and tax considerations.  It may also be important to consider the location of the business, the type of business involved, and the potential for future growth of the business.  This list is not exhaustive and other factors could be important to each individual business owner.

Incorporation comes with some key advantages compared to a sole proprietor operating a small business.  Limited liability, lower corporate tax rates, and the fact that a corporation is considered to be a separate and distinct legal entity from the owners of the corporation are the main advantages.   However, the cost to incorporate is greater than other forms of carrying on a small business, and once incorporated, a new corporation must meet certain ongoing legal obligations.

While resources are available online to help a sole proprietor make the decision on whether or not to incorporate, a sole proprietor should seek legal advice to ensure that all of the key aspects of incorporation are clearly understood.