2 Advantages of Sole Proprietorship VS Incorporation in Quebec for Young Professionals
If you’re a young professional just beginning to dip your toe into the world of entrepreneurship, you may assume you need to incorporate as a “real” corporation instead of an unofficial side gig. But in many cases, incorporation may not be the best option—at least until you’ve been in business for a while.
Creating a corporation while your business is still a small sole proprietorship could mean losing flexibility and paying extra fees for what amounts to a minimal long-term benefit.
Read on to learn more about 2 advantages of registering as a sole proprietorship in lieu of incorporation in Quebec
1. Minimal Startup Cost and Fees
A sole proprietorship has just one business owner: you. This means that you get to keep all your business’s profits and that you’re fully (and personally) responsible for all business-related debts. Although this liability can pose some risks, as a sole proprietor you’ll have direct control of all decisions made for your business, giving you the ability to dictate factors within your control like prices, offerings, and marketing efforts.
Sole proprietorships have minimal startup costs. By lowering your capital needs at the beginning stages, you’ll be able to plow every extra penny back into your business, increasing growth faster than you’d be able to with a corporation.
There are also some tax advantages during the early stages of your entrepreneurship or at times when cash flow is minimal. To help offset the risk associated with a sole proprietor’s personal liability for business debts, entrepreneurs can also deduct many business expenses from their personal income, reducing both their tax rate and their tax liability.
2. More Flexibility
Incorporating a business requires far more than the initial startup paperwork and fees. Incorporated businesses are required to file annual reports with the government to provide information on shareholders and various business financials. Not only can this be a time-consuming process, it can feel like an intrusion into your privacy when you’re trying to keep your head down and focus on building your business.
Sole proprietorships have much more flexibility and far fewer reporting requirements than incorporated businesses. Because corporations are a separate legal entity, owners can’t just remove money whenever they want, even if there are no other shareholders or employees with whom they need to split profits.
This inflexibility can make it tough for a small corporation to stay afloat during market slowdowns if you need to access capital or use business profits to pay certain personal expenses. By remaining a sole proprietorship, you’ll be able to keep your startup costs as low as possible while maintaining the flexibility to take your new business in any direction it needs to go.
Once you’ve gained some stability or expanded, incorporating may be a way to limit your personal liability for business debts. If you do decide to transform this sole proprietorship to a corporation at a later date, it’s crucial to seek legal advice from a notary to ensure everything is in order during what can sometimes be a complex incorporation process.