Incorporation vs Sole Proprietorship
Should I Incorporate or Register a Sole Proprietorship / Partnership?
We suggest you to seek legal advice from your accountant or lawyer. However the following information might assist you in making your decision as well.
Disclaimer: The information provided on this page is for general informational purposes only and may not apply to all situations. It is not intended as legal advice. For specific legal concerns or questions, we strongly recommend consulting with a qualified legal professional to obtain advice tailored to your particular circumstances.
The major differences between an Alberta Corporation and a sole proprietorship in Alberta are:
Legal Structure:
Alberta Corporation: A corporation is a separate legal entity distinct from its owners. It can enter into contracts, own property, and be liable for debts independently of its shareholders. This structure provides limited liability protection, meaning the personal assets of the shareholders are generally protected from business debts and liabilities.
Sole Proprietorship: A sole proprietorship is not a separate legal entity from its owner. The business and the owner are considered one and the same, meaning the owner is personally responsible for all business debts and liabilities. There is no distinction between personal and business assets.
Liability:
Alberta Corporation: Shareholders’ liability is limited to their investment in the corporation. Personal assets are protected from business liabilities and debts.
Sole Proprietorship: The owner has unlimited personal liability for business debts and legal obligations. Personal assets are at risk in case of business liabilities.
Taxation:
Alberta Corporation: Corporations are subject to corporate tax rates, which may differ from personal tax rates. Corporations can benefit from certain tax deductions and credits not available to individuals.
Sole Proprietorship: Income from a sole proprietorship is taxed as personal income on the owner’s tax return. The owner pays personal income tax rates on the business profits.
Ownership and Management:
Alberta Corporation: Ownership is divided among shareholders, and management is typically handled by a board of directors and officers. This structure allows for multiple owners and can facilitate raising capital through the sale of shares.
Sole Proprietorship: The sole proprietor owns and manages the business directly. There are no shareholders or board of directors, and the owner has complete control over business decisions.