You have a business idea, and you’ve determined that it is viable. Now what?
Before you launch your effort, you’ll want to consider how it will be structured: should you incorporate, or keep it as simple as possible? In large part that will be determined by your own circumstances and goals, plus some basic characteristics of business structures.
First, what are your circumstances? Are you the heart of your own business model – are your specific talents and skills front and centre? If that’s the case, and you couldn’t easily replace yourself, then you’re likely a sole proprietor. Businesses organized as sole proprietorships have no legal existence apart from the sole proprietor. That means that you’ll be fully in control of your business, and will shoulder all of the risk and reward. It also means that when you’re ready to step away, the business will end, leaving you with only the assets.
If, on the other hand, your goal is to be a value creator, someone who builds a successful business and moves on to a new venture, you’ll want to incorporate. With their own legal “personality”, incorporated businesses can be bought and sold; they can accumulate “goodwill”, or reputation, that translates into value greater than the sum of their assets.
From a practical point of view, you’ll want to pursue incorporation if you:
- Need to raise capital
- Want a lesser degree of personal liability
- Want the company to have an enduring existence
But starting your business under one structure doesn’t mean that you can’t change. Sole proprietorships can incorporate if it makes sense to do so, and the reverse is also true. Above a certain level of income, there may be tax advantage for a corporation; a small operation may find the annual financial reporting obligations of a corporation too overwhelming.
If you want more information, Community Futures Big Country is your local resource centre. See our website at https://bigcountry.albertacf.com/resources, or call for a free appointment with a business advisor (403) 823 – 7703.
