Sole proprietorship or company?
Once the business plan is ready, the next step is to decide on the legal form. If you are selling your services, you have the choice of setting up in business as a sole proprietorship or as a company.
“The sole proprietorship is still widely used by entrepreneurs,” explains Marie-Sultana. “But this statute doesn’t protect their personal property in the event of bankruptcy”.
To separate your professional from your personal finances, you need to create a company, that is to say a legal entity.
This statute offers greater protection, but also implies a heavier administrative burden. “You have to document the decisions, publish your accounts and therefore, theoretically, call on the services of an accountant,” says the lawyer.
Also note that a sole proprietorship isn’t taxed in the same way as a company. Basically, in the first case, you are taxed on what enters your account, namely on your turnover. In the second case, it is the company that is taxed and you will need an additional mechanism (receipt of dividends and/or payment of remuneration by the company) to pay you income, on which you will also be taxed personally.
One is not necessarily better than the other. It all depends on your business. However, once you overshoot a certain expenditure threshold, such as renting a workspace or using subcontractors, the company tax system makes more sense in terms of taxation.
To guide you in your first steps as entrepreneurs, and in particular the choice of legal form, the House of Entrepreneurship organizes a webinar each week in English and French, followed by a Q&A session. Here is the link to register.
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