Incorporation vs. sole proprietorship: how should you structure your business?

In a sole proprietorship, the business and the owner are considered one entity. The owner is fully responsible for all debts and obligations related to the business; that means that creditors can make a claim against the business owner’s personal assets, as well as the business assets, to settle any debts.

Pros:

• Easy to register
• Less red-tape
• Business owner has full control
• Cheaper to start business
• May be tax advantages
• Business owner gets all profits directly

Cons:

• Business owner assumes full liability
• May be tax disadvantages (if business is successful you may go up a tax bracket)
• Uncertainty when business owner is unavailable
• If you need start-up money it can be difficult to raise; same when you need financing to grow the business 

When a business is incorporated, it becomes a separate entity to the owner; this means the owner is not personally liable for any debts.

Pros:

• No personal liability for business owner
• May be tax advantages (if qualify for small business tax rate)
• Added credibility – easier to raise start-up funds
• Can transfer ownership of business

Cons:

• More red-tape
• Can be expensive to incorporate
• Greater paper-burden