Should You Incorporate or Be a Sole Proprietor?


When starting a business, many people wonder if they should file as a sole proprietor or form a corporation instead. There are a few key differences between the two titles that entrepreneurs should be mindful of.

Should You Incorporate or Be a Sole Proprietor?

First, being a sole proprietor can provide you with more leeway as a self-employed individual in regards to how you operate your business. That being said, opting to become a corporation instead can provide you with legal protection later down the line.

Although there are several factors to consider before heading to City Hall and filling out the paperwork, here are the top three:
  1. Money. Although forming a sole proprietorship is relatively simple, it may require the help of a lawyer, which, of course, means accruing additional fees. If you're willing to pay these expenses, however, it may be worth your time to distinguish yourself as a sole proprietor.

    Remember that doing so comes with the responsibility of taking on money matters under your own name. If you take out credit for your beading business, you--not your company--will ultimately be obligated to pay it back. Keep these matters in mind and consider your financial stability before moving forward with plans to becoming a sole proprietor.

  2. Business size. Do you hope to expand soon after your beading shop is open, or do you plan on running a smaller enterprise? These factors are important to consider, because sole proprietorships are usually geared toward the small business owner. This title can work in your favor over time, which may make it worth looking into.

  3. Legal implications. Many entrepreneurs incorporate for one reason only--liability. If someone chose to sue your company, your personal assets would not be at risk if you're incorporated. Those who have decide to form a sole proprietorship should understand that if a lawsuit were to be issued, belongings such as their house and car can be seized to pay the bills.

    As a corporation, you are considered to be a separate entity from your business. This means that individuals can sue your company but not directly affect your good name. Many entrepreneurs choose to go this route in order to protect their overall investment. However, that's not to say that you're making a risky move by being a sole proprietor. Each title has its own pros and cons, which makes it important to go over all of them before making a final decision.


Recommended Just for You