Incorporation Services Canada
Major Differences / Benefits
Between
Sole Proprietorships
•Easy and inexpensive to set up
•Little regulation from the government
•Directly controlled by the owner/operator
•Minimal working capital required
•Business is taxed through owner's personal income tax, and losses can be used to reduce taxes on other sources of personal income
•Wages payable to a spouse are deductible from the income of the business.
Disadvantages of Sole Proprietorships
•Unlimited personal liability
•Lack of continuity in business organization in absence of owner
•Difficulty in raising capital
•Owners are taxed at individual tax rate, which is much higher than corporate tax rate
VS.
CORPORATION
Separate Legal Entity
A corporation has the same rights and obligations under Canadian law as a natural person. A corporation can acquire assets, go into debt, enter into contracts, sue or be sued, and even in some situations be found guilty of committing a crime.
VS.
Limited Liability
Shareholders of a company are not liable for the company's debts. If the company goes bankrupt, then a shareholder will not lose more than his or her investment (unless the shareholder has provided personal guarantees for the company's debts). A creditor cannot sue shareholders for liabilities incurred by the corporation, even though shareholders are owners of the corporation.
Lower Corporate Tax Rates
A corporation is taxed separately from its owners and generally at a lower tax rate. For example, active private companies in Ontario pay a combined flat tax of less than half that of an individual in the highest tax bracket on the first $400,000 of taxable income.
Greater Access to Capital
Raising capital is often easier for corporations than for other forms of business. For example, corporations are entitled to issue bonds or share certificates to those who invest money in the company. Other forms of business must rely solely on their own money and loans for capital. Corporations often are able to borrow capital at a much lower rate than other forms of business. This is because financial institutions and other sources of financing perceive loans to corporations as being less risky investments.
Continuous Existence
Unlike a partnership or sole proprietorship, a corporation does not cease to exist upon the death of its owners. Ownership would transfer to the shareholders' heirs, and the corporation would still live on. This assurance of continuous existence gives a business greater stability, allowing it to carry out planning over a longer term and to obtain more favorable financing terms Incorporate business now order here
