Alternatives to Incorporating

There are many benefits to incorporating a business, but it’s not right for every situation. The most common alternatives are operating as a sole proprietor or a partnership.

The Sole Proprietor

Being a sole proprietor means you’re in business for yourself. Money made goes directly into your personal bank account and is taxed at your personal rate.

Benefits: Cheapest to set up, less administrative work, direct control over decisions, no need to declare dividends or pay wages.

Downsides: Unlimited personal liability, cannot share ownership, income taxed at personal rate (potentially higher brackets), limited branding options, harder to sell or transfer.

The Partnership

Two or more people working together to make a profit. Each partner is considered an agent of the partnership.

Benefits: Easy to set up, partners can enter into a partnership agreement, shared decision making, partnership itself doesn’t file a tax return.

Downsides: Unlimited personal liability for each partner, each partner responsible for the other’s decisions, difficult to determine ownership of assets, higher potential taxes, limited name protection, difficult to transition.

How to Decide

If any of the following apply, you should seriously consider incorporation:

• You intend to sell your business at some point
• You expect the business to generate over $50,000 per year
• You want to have business partners
• You intend to hire employees
• You’re concerned about protecting personal assets
• You want to protect your brand identity
• You want to split income with your spouse
• You expect the corporation to have more than one owner

We strongly recommend speaking with a lawyer before making a decision. A good lawyer won’t pressure you to incorporate — they’ll help determine if it’s right for you.