Benefits of Incorporating vs Operating as a Sole Proprietorship

What are the benefits of incorporating versus operating a sole proprietorship?

A sole proprietorship is a business owned and operated by an individual. It is relatively inexpensive and easy to set up. However, it has several disadvantages for startups, including:

  • The owner remains personally liable for the actions of the business 
  • All income is attributed to the owner and taxable at the personal tax rates 
  • Difficult to raise capital since you cannot issue equity 
  • Business does not exist without its owner and therefore can have no succession 

A corporation, on the other hand, is a separate legal entity and exists apart from its shareholders and those who operate the business. Some of the advantages include:

  • Limited liability - owners are not personally liable for debts, obligations, and acts of the corporation 
  • Equity (ownership) of the business can be issued (including in exchange for investment)
  • Can exist without a specific person
  • Possible tax advantages as taxes may be lower for a corporation 

Generally, for a startup seeking to raise money, we recommend incorporating a new company instead of operating as a sole proprietorship. 

Did this answer your question? Thanks for the feedback There was a problem submitting your feedback. Please try again later.