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Originally Posted by Circa89
so what are the benefits of incorporating versus sole proprietorship ?
I have heard that if you want to Bankrupt the corporation the house etc can not be touched and that is why most people do it.
Is this true ?
do it for Bankruptcy protection or for tax breaks?
Why incorporate if sole proprietorship is free?
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liability is the main reason. If a corporation gets sued, it can lose all it's assets (which are probably minimal for most single employee corporations). If a sole prop gets sued, it is YOU who is getting sued and all of your assets (houses, cars, cash, investments, even RRSPs too I think) are at risk.
A corporation is treated like a person in the eyes of the law. Can be sued, has to pay its own taxes, can own property etc.
As far as loans etc. go, you're not really protected as any bank would make you sign a personal guarantee (basically co-sign the loan) saying that if the corp. doesn't pay, you will.
Corps have other advantages too, like tax deferral (as mentioned earlier), easier to transfer/sell (you sell your shares vs. selling all of your assets). Corps can have an easier time getting financing (ie. you can sell off some shares for $$$ - you have no debt, you just get less when you distribute the income). Also don't have to pay EI (as mentioned)
Disadvantages are mainly it is complex. Lots of regulations, lots of registration/filing requirements, taxes are totally different, GST etc. Corporate tax rates can be higher, unless you qualify as a small business corp. Also dividends are paid on after tax $$$ (ie. already been taxed) but get added to your own tax return as well as income, for some good old double taxation (you do get a credit that offsets some of this, depending on the tax bracket you are in).
Basically, it depends on the type of business you are in, your exposure to risk, whether any tax advantages are held by being a corp. in your business situation, and whether you can handle the admin (or pay someone to handle the admin) of all the added corp tax/filing needs.
Hope that helps :-)