Do you run a creative business and reached a point where you’re wondering if incorporation might be right for you, or if you should stick to the sole proprietor path? With pros and cons to each, it can be difficult to decide which choice is best for you and your business. We’re hoping to make that decision a little easier with the next offering in our “Business Workshops for Artists” series.
This Wednesday, January 18, lawyer Brandon Baird with McInnes Cooper (whose practice is focused on corporate and business law) will lead an online session where he’ll walk participants through the structure of each, the pros and cons, associated costs and more. (Click here for details.)
We caught up with Brandon to dig a bit into the topic ahead of his session.
Business & Arts NL: What’s the most common question you’ve come across from people when deciding if they should continue as a sole proprietor or incorporate their business?
Brandon Baird: The most common question is “When?” Most ventures start off as an idea that grows into something sustainable and then once business owners realize that their idea is gaining momentum, they think the natural next step is to incorporate a company – but “when does it make sense?” is the question that is most often puzzling to most.
Business & Arts NL: As they say, timing is everything. At what point in a creative professional’s career should they start to consider if incorporation might be right for them?
BB: How’s that for a segue? There are two main benefits to incorporation: limitation of liability and taxes. It becomes important to consider incorporation when one or both of those areas offers benefits to your business.
Business & Arts NL: Regarding liability – can you give us a bit of a peek into what you plan to discuss there?
BB: Liability is determining who is responsible when something goes wrong. Incorporation provides you with a way to shelter your personal assets from liability caused by your business. Although one of the main benefits of incorporation, limiting liability is not fully understood by most new business owners. Drawing a divide between corporate and personal assets allows you to conduct your business without the fear of risking your family home, for example.
Business & Arts NL: Let’s talk taxes for a moment (as they tend to be on people’s minds around this time of year). In terms of tax planning and ease/complexity of filing, etc., what would you say are the pros and cons of each (sole proprietorship vs incorporation)?
BB: There is a tax tradeoff between sole proprietorship and incorporation. A sole proprietor will claim the business income as personal and therefore will only be taxed once, but at a personal tax rate. An incorporated entity will claim the business income as income of the business and therefore will be taxed at the business tax rate – which is lower than the personal tax rate. However, in order for the business owner to take the money out to use for personal expenses (non-business related expenses), it would first be taxable as personal income at the personal rate – ultimately being taxed twice. For most tax issues we would recommend that business owners consult with their accountant and we would be available to step in where legal is required.
Workshop: Incorporation vs Sole Proprietorship
Date/Time: Wednesday, January 18 from 1-2pm (NT)
Location: Online via Zoom
Registration: Click here