Ask a Bookkeeper: Why You Would Not Incorporate Part 2

Incorporating is a big decision, while there are many potential benefits for you, there are drawbacks to take into consideration.

There’s always give and take when it comes to assessing the direction of your business, and I want to help you get the full picture to help guide you through your entrepreneurial journey!

Now, let’s discuss why you would not incorporate your business:

• Increased Administrative Burden

Incorporating a business introduces a higher level of administrative complexity. Solopreneurs must adhere to more stringent record-keeping requirements, file annual corporate tax returns, and maintain minutes of corporate meetings. This added paperwork can be time-consuming and may require professional assistance, which increases costs.

• Higher Costs

The costs associated with incorporating can be significant. There are fees for incorporation itself, which include both federal and provincial charges, as well as ongoing expenses like annual filing fees, legal fees, and accounting fees. For a solopreneur operating on a tight budget, these costs might outweigh the potential benefits. You would be looking at $2,000-$3,000 for tax filings plus annual filings with Incorporations Canada.

• Limited Tax Benefits for Low Income

If your business generates modest income, the tax advantages of incorporation may not be as significant. Solopreneurs with lower earnings might not benefit from the lower corporate tax rates or income-splitting opportunities that are more advantageous at higher income levels. In such cases, remaining a sole proprietorship might be more straightforward and cost-effective.

• Simplicity and Flexibility

Operating as a sole proprietor offers simplicity and flexibility. There are fewer regulatory requirements and administrative tasks compared to a corporation. This simplicity allows solopreneurs to focus more on running and growing their businesses rather than managing corporate compliance.

• Personal Control

As a sole proprietor, you retain complete control over your business decisions and operations. Incorporating introduces shareholders and directors, which can complicate decision-making processes. For solopreneurs who prefer to maintain full control and autonomy, remaining unincorporated is often the preferred option.

• Immediate Access to Profits

In a sole proprietorship, business profits are directly accessible to the owner. Incorporation can complicate this process, as funds must be drawn as salaries, dividends, or loans. The additional steps required to access business profits can be inconvenient for solopreneurs who rely on their business income for personal expenses.

You’ve come to the end of this Ask a Bookkeeper blog mini-series, which congrats, that was a LOT of information!

Now what?

Well, now you can take this information and assess your needs as an entrepreneur. Weighing both the benefits and the drawbacks of incorporation, you are one step closer to making that decision.

Want to talk about incorporation? Book an Ask a Bookkeeper Session for more incorporation information and advisory services!