Sole Proprietorship, Partnership or Incorporation: Which one is right for you?

Sole proprietorship (or partnership, if more than one owner) or incorporation? This is a decision that every start up in Canada will have to answer. There are benefits and drawbacks to both types of business, and they must be carefully weighed before you make up your mind. In brief, a sole proprietorship is easier to establish and it will cost less initially. Incorporation, however, means less personal liability. Also, there are often long-term cost benefits that outweigh the initial cost of incorporating.

Here are just a few things to consider when making up your mind about whether to incorporate or not.

  • Do I serve or sell food?
  • Do I or will I have multiple partners?
  • Do I personally have a lot to lose if my business goes through a rough patch, or perhaps even faces a lawsuit?
  • Will I need to borrow money to grow my business?

If you answered yes to the above questions, it would be a good idea to look into the possibility of incorporating.

  • Is my business part-time and/or home based?
  • Is my business low liability?
  • Is my accounting/bookkeeping simple and straightforward?

If you answered yes to these questions, you might choose to consider running a sole proprietorship.

Choosing between a sole proprietorship, partnership and incorporation is a very important decision that will impact your business in many ways. Before making this decision, please contact an expert or CFIB’s business counsellors.