Incorporation vs Sole Proprietorship: Q&A with Joe Cardoulis of Grant Thornton & Felicia Tupper of Benson Buffett

Whether you’ve been a creative professional for years, or are just starting out, there might come a time when you start to consider if you should continue as a sole proprietor, or make the leap and incorporate. But which makes the most sense for you and your overall goals? Do you have a good grasp of the differences between each? Is incorporating worth the cost?

Joe Cardoulis, tax manager at Grant Thornton, and Felicia Tupper, associate lawyer with Benson Buffett, will help artists wade through these questions and more during their session “Incorporation vs Sole Proprietorship - Pros & Cons” on November 14 at Memorial University’s Signal Hill Campus. We recently caught up with both facilitators for a preview.

Joe Cardoulis

Business & Arts NL: At what point does it make sense for an artist to consider whether or not they should continue to operate as a sole proprietor, or make the jump and incorporate? (e.g. After a certain number of years of practice? Once they reach a particular financial point?)

Joe Cardoulis: Main point – Are you making more money than you currently need to support your lifestyle? If not, incorporation is not recommended.

Felicia Tupper: There are several considerations that may determine when a sole proprietor elects to incorporate their business. A few considerations may include when the sole proprietor is ready to enter into contracts with customers, suppliers, employees, etc., they have a preferred corporate name that they want the exclusive use of, they want the protection of limited liability to protect personal assets, some government funding applications may require incorporation, etc.

Business & Arts NL: What, in your view, would be one of the major pros and cons of each?

JC: Pros of sole proprietorship:

a. Simple structure

b. Less reporting requirements (only personal tax return)

Cons of sole proprietorship:

a. Less flexible in terms of tax planning

Pros of corporation:

a. Can take advantage of the tax deferral of revenue to reinvest in the business and pay down company debt quicker

b. Limited liability

c. Allows you to streamline your income in years your income is not as high as you anticipated

Cons of corporation:

a. High initial start-up costs (accountant/lawyer fees)

b. More administrative costs

c. More filing requirements (corporate tax returns, T5’s, etc.)

d. New tax legislation announced in July 2017 significantly hinders the ability to take advantage of what used to be huge advantages of a corporation (i.e. using tax deferral to grow an investment portfolio for retirement and the ability to income split with family members).

FT: Sole proprietorship:

a. In my view, the most significant pro to sole proprietorship is that they are easy to form and the owner has sole control of the business.

b. In my view, the most significant con to sole proprietorship is the unlimited personal liability for all of the business’ losses and liabilities.

Incorporation:

a. In my view, the most significant pro to incorporating is limiting the liability of each shareholder to the amount of money he or she invested in the company. However, there are exceptions to this.

b. In my view, the most significant con to incorporating is the legislative reporting requirements and additional record keeping.

Business & Arts NL: For those artists who may be considering incorporating, are there certain things they need to take into account, that those working in other professions do not?

JC: a. The ability to use the capital gains exemption – 99% of the time not available to artists/performers as there is no “sellable business” per se, versus someone who owns a car dealership for example.b. Many people incorporate to use the tax deferral to reinvest in the business and pay expenses (i.e. use the excess cash to purchase equipment/inventory). Do performers/artists need to make large capital expenditures to operate? In many cases no.

FT: There are no obvious special considerations that artists should take into account when determining whether to incorporate that other professions would not need to consider.

Business & Arts NL: What do you hope the artists who will be in attendance will take away from your session?

JC: To help them decide if incorporation is for them. Main thing to walk away with is this – Do you make more money than you currently need to support your lifestyle? If you don’t, incorporation is not recommended. If you do, here is how you can benefit from incorporating.

FT: I hope the artists leave the session understanding that the cost of incorporating their business is worth the financial investment in order to protect their personal assets from their business’ losses and liabilities.

Workshop: Incorporation vs Sole Proprietorship - Pros & Cons

Date/Time: Wednesday, November 14 from 2-4pm

Location: Room 2007b, Emera Innovation Exchange, MUN Signal Hill Campus

Price: Free for Business & Arts NL members, or $10 for non-members (includes a free 1-year Business & Arts NL membership)

Registration:Click here