Edmonton Accounting Firm | Benefits of Operating a Proprietorship
There is no rules associated with when a business owner must incorporate their business says Edmonton accounting firm. And many people own proprietorships, thinking that there are a lot of advantages. Over and above incorporating their business.
And while it is true, it is less expensive to do the financial year end of a proprietorship then unincorporated business. As well as there are not the same monthly reporting requirements that unincorporated business has.
This does not necessarily mean that there are more advantages to a proprietorship then unincorporated business. In fact, many business owners may be surprised to realize that what they thought was a huge advantage, mainly cost associated.
In fact not a benefit at all. And not only can they save more in taxes in the long run. But the other benefits of incorporating. Makes it even more attractive to incorporate their business sooner than they may have anticipated.
People who own proprietorships, are allowed to file their business taxes along with their personal taxes. And the year and requirements are much simpler. Meaning it is less expensive to file a taxes for a proprietorship.
In addition to that, unincorporated business must report monthly to the government. And this also has a cost associated with it. That proprietors do not have to pay.
However, Edmonton accounting firm says that the highest personal tax rate in Alberta is 48%. and people who own proprietorships must pay personal tax on their business income.
And businesses who are incorporated, pay only 11% in taxes. Meaning many business owners save up to 37% in taxes overall. Which makes it more financially beneficial to incorporate, based on the tax savings alone.
In fact, many proprietors are very surprised by the fact that they have to pay both the employer and the employee contribution of CPP. Which can end up with them paying even more in taxes then they realized at the beginning of the year.
With this, and the other tax savings that they can experience. Often makes it far more sense financially for a proprietor to incorporate sooner rather than later.
Edmonton accounting firm says the general rule of thumb is that once a proprietor is making fifty thousand dollars in net income each year. They are more financially well-off to incorporate than to operate a proprietorship.
However, in order to find out if this is true for their business personally and their own personal circumstances. They should make an appointment with their Edmonton accounting firm. And find out if this is the case for them.
And while many proprietors do not incorporate. Because they think that they are not large enough yet. By incorporating sooner rather than later. Entrepreneurs will be able to grow their business without worrying that they are going to go over that tax threshold, and end up paying more money in taxes.
So if business owners are planning on growing their business at all. They should consider the benefits of incorporating their business sooner. So that this does not have to be a roadblock later on, when they are successful at growing their business larger.
How will your Edmonton Accounting Firm be able to help.
Many entrepreneurs start off by operating a proprietorship says Edmonton accounting firm. Because they are not aware of when the best time to incorporate their business is.
They often think that there are advantages of operating a proprietorship. But there is not a lot of benefits associated with operating a proprietorship. And there are actually a lot of risks associated with it instead.
To start, many proprietors may not realize that if they get sued as a proprietor. They could have their personal assets and savings at risk.
And since operating any business is never zero. If people and up getting sued through the course of running their business. Assets like their home, their vehicles, and their money such as their savings or RRSPs and investments. Are actually at risk. And could be taken away in a judgement if they are found guilty. If the lawsuit does not go in their favour.
And while many businesses are far more likely to get sued. Such as independent contractors. Even low risk businesses such as graphic designers and web designers for example. Could very easily get sued if for example, they have to drive somewhere to get to a job they have been contracted to do.
Therefore, if business owners incorporate their business. It is the company that holds the liability and not the directors of the business. Therefore, if a business owner gets sued. Edmonton accounting firm says it is the company’s assets and the companies money is that is at risk.
While this does not make the risk of the rectors zero. It makes it significantly more difficult. For anyone who is suing the company to get to the directors and their assets. Therefore, if a proprietor has assets, such as a home that their family lives in. Or significant amount of savings or investments.
They should consider incorporating their business sooner rather than later. So that if they do end up getting sued, they will not lose everything that they worked so hard to get.
Another reason why proprietorships hold more risk than corporations. Is because the tradename can be used by others. Edmonton accounting firm says many proprietors believe that going to corporate registries to register their tradename protects it. It actually does not.
Other people or companies can come along and incorporate that tradename, and do so legally. Therefore, by incorporating their business first. Legally protects their tradename. And ensures that no other company or person can operate under that name.
And ultimately, when proprietors incorporate their business. They are just seen as a more legitimate organization. Which can help ensure they are more likely to land jobs, or get hired.
And when business owners jump into business ownership with both feet. And incorporate their business. They are far more likely to be successful. Because there putting all of their effort and energy into growing their business. Then proprietors who may be operating their business as a side business.