Summary

In conclusion the primary advantage to incorporating your business is the protection from personal liability. Your liability will be limited to the assets owned by the corporation and you will receive personal protection for liability arising from contracts, leases, uninsured risks, creditors and suppliers. There are also the advantages of greater flexibility and control allowed by ownership of shares in a corporation rather than ownership of the assets of a sole proprietorship. The ability to defer tax, split income and level out income fluctuations for tax purposes are also of benefit.

On the other hand the primary disadvantages of incorporation are the cost and the increased formalities required of a corporation in complying with government regulations for reporting information.

While every case must be judged on its own facts, a few general conclusions can be drawn. The relative importance of the advantages and disadvantages will vary according to the size of the business. Generally, the higher the net income of your small business, the more advantageous it is to incorporate instead of remaining a proprietor.

It is wise to seek professional advice to assist in your decision-making, and in the setting up of your business structure. It is also very important to get your accounting records set up and organized properly at the start of your business.