This blog aims to educate people and business owners in Ontario, Canada. It is specifically for those who want to start a business or work as individual business owners. BG Accounting Group emphasizes educating its customers and readers through comprehensive learning. Let’s find out what a corporation is and how it can help your business in the long term.
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ToggleBefore deciding to form a business structure, first, understand the corporation and how it works. People often say there will be a struggle for a board of directors, multiple owners, or public shares.
All these things are true in a corporation, but a corporation is simply a “Separate Legal Entity”. You won’t be the one fighting, but a new entity will handle all the financial transactions for the business. Now, let’s move further into our topic and discuss a sole proprietorship for our exclusive learning.
A sole prop is a single-cell entity formed and run by the individual only. The business owner is responsible for all the money earned or taken out of the company in this simple business structure. The owner must pay taxes on the money earned from the company. Additionally, the owner will also have to handle legal and financial responsibilities.
We have reached a point where we are not making a profit or a loss. This is after understanding the key aspects of a business. sole prop and a corporation.
Below are the primary differences b/w a sole prop and a corporation in terms of their importance to the business. Choose which one is best for your business and get that going.
SOLE PROPRIETORSHIP (T1) | CORPORATION (T2) |
The sole prop business will not exist after the demise or abortion of an owner. | In a corporation, you can have the leverage of perpetual existence even after the abortion of ownership. |
The cost to set up and maintain a sole prop is relatively low than a corporation. | The corporation is 3-4 times more costly than a sole prop. Hard to setup and expensive to maintain |
In a sole prop, business losses are applied against other sources of income to generate refunds. | In a corporation, you must adhere to pay against the losses your business is bearing and can’t write them off. |
Due to unlimited liability, you will lose your business in case of being sued by the state. | There is possession of limited liability in a corporation. As it is a separate legal entity, owners are not personally liable for the financial and legal drawbacks. |
Tax rates are higher for a sole prop as your income is taxed on a personal tax rate. | Generally, corporate tax rates are much lower than sole prop income tax rates. |
Think about the important differences in reporting between a sole proprietorship and a corporation before choosing one for your business.
Reporting is complex and requires accurate account management, strong bookkeeping, and expert advice. BG Accounting and Business Solutions will take care of your hard-earned money in the most profitable manner.
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