Transitioning from Sole Proprietorship to Corporation
Generally, it takes about a week to set up everything for a new corporation, including setting up your new bank account and making changes to cheques and business cards. What is better sole proprietorship or partnership? A sole proprietor is limited to money he can invest in the business, loans from family and friends and third-party credit. Partnerships enable you to share the financing and operational burden. You give up equity in your business, but you gain additional resources that can help the business expand more quickly.
I have a sole proprietorship. Now I was looking to convert it to a Federal Incorporation with an office in Ontario. I already have an MBL under a sole proprietorship and a Name which is "ACME Technology". The first step once you have decided to incorporate is to register your new corporation. An important facet of incorporation is deciding whether you want to do it federally or provincially.
The owner of a sole proprietorship has sole responsibility for making decisions, receives all the profits, claims all losses, and does not have separate legal status from the business. When this type of business entity is owned by a corporation, in Ontario, it’s called Trade Name Registration.
As revenues increase, it may make more sense to switch over from sole proprietorship to corporation, where the business is a separate entity from the individuals who own it. Now let’s talk about the actual process of moving from a sole proprietorship to a corporation.
The first thing that we have to do is eliminate our sole proprietorship. This is done under two steps…
Make sure you give us a call so we can properly guide you through the process and ensure all the paperwork is correctly filed with the Canada Revenue Agency.
We will discuss ways you can change your business from a sole proprietorship to a corporation in Canada. This includes how to register for your corporations, things to think about before incorporating, how to run a corporation properly, and much more.
The legal structure is the primary difference between a sole proprietorship and a corporation.
A sole proprietorship is just you personally. So, if your business is sued, you are liable. A corporation is a separate legal entity with limited liability.
Similarly, if you own a corporation and decide to semi-retire or scale back your business, you can close the corporation and go with a sole proprietorship.
Steps to Convert to a Corporation
Can we convert sole proprietorship to the company? The proprietor must:
- Apply for the availability of the name in Form – 1.
- Apply for the incorporation of the company to the Ministry of Corporate Affairs (MCA).
- Submit all the relevant documents.
- Receive the Certificate of Incorporation.
Advantages and Disadvantages
What are the advantages and disadvantages of changing from a sole proprietorship to a corporation?
- The advantage of a Corporation is liability protection.
- The owners are protected from the debts and liabilities of the business.
- The disadvantage of a Sole Proprietorship is unlimited liability.
Is it better to incorporate or sole proprietor in Canada? Incorporation provides greater liability protection for you as a business owner than sole proprietorships or general partnerships.
In your case, it is different since you have a salary job that supplies you with that income, plus it then puts any sole proprietor income into a very high tax bracket. You should definitely incorporate, pay the much lower corporate tax rate on your side income, and keep the money in the company.
How much tax does a sole proprietor pay in Canada? For 2020, self-employed Canadians must prepare to pay to the CRA 10.5% of their income up to a maximum of $5,796.00.
Incorporation in Canada
Are you wondering whether you should incorporate your business or stay a sole proprietor in Canada? Back in 2021, I incorporated my business after running it as a sole proprietorship for 5 1/2 years. This was a big decision for me, which is why it took me so long to decide when the time was right.
Incorporation is typically the more beneficial option for businesses in Canada. It offers a variety of advantages, such as:
- Limited liability protection.
- The Lifetime Capital Gains Exemption provides owners of Canadian Controlled Private Corporations with tax-free capital gains of up to $$1,016,836.
Many professionals in Canada are becoming self-employed by registering for a sole proprietorship. If you’re interested in joining the free and independent ranks of Canadian sole proprietors, you have come to the right place.
Registering a sole proprietorship in Ontario offers an easy and cost-effective setup, especially when compared to incorporating a business. You have the option to register online or through a service provider, typically for minimal fees.
The basic corporate tax rate in Canada is approximately 26%. There is the tax deduction rule called Canadian Controlled Private Corporation (CCPC), which reduces the tax rate of a Canadian owned corporation from 26% to 12%.