Watch the video on the Pros and Cons of Corporations, Sole-Proprietorships and Partnerships
Here is the video transcript from “The Pros and Cons of Corporations, Sole-Proprietorships and Partnerships”
John Paul: Hi there, and welcome to Campanella McDonald’s Tax Tip video. Today, we’re going to talk about what kind of set up corporate structure you should look at when starting a new business.
Fabio: So generally, you have three broad choices when starting a new business, either a sole proprietorship, a partnership or a corporation. Why don’t you talk about sole proprietorship?
John Paul: So sole proprietorship is really where you’re really just yourself. That is your company. It’s your name. You go out and you tell people you’re now operating a business. That is the simplest form of business. It is also the most riskiest because there is no protection other than really insurance down the road. There’s really no tax planning with regards to being a sole proprietor.
Fabio: So similarly, a partnership is really, at the end of the day, just you and a partner or multiple partners. In my opinion, it’s actually quite a risky undertaking because in most provinces, well for the most part, it’s joint and several liability for a partnership. So for example, if one of your partners goes out and does something, borrows money on behalf of the partnership and you guys go under, the bank or whoever loaned you the money can actually attack all the different partners individually or jointly. One of the benefits of a partnership or a sole proprietorship is if you have losses in the first few years, those losses can be carried against other forms of income on your tax return. You can’t do that with a corporation, but there are benefits to using a corporation right from the get go.
John Paul: Right. So the corporation again, is going to add that level of insurance where they’re not going to able to pierce the corporate veil and sue you outside of the company in most cases. Now the losses that you would see in the first couple years, which is somewhat normal, they don’t fall off the table in a corporation, you will be able to use them down the road against future income. So those are the three kind of structures. Do you have anything more?
Fabio: Primarily, it’s risk based. If you’re not in a very, very, very risky situation and you want to utilize those losses, you may want to consider a sole proprietorship or a partnership because they’re simple. If you are in something – you’re in a contractor or you’re in another type of industry where there is an element of risk and you have assets that you don’t want attacked, you’re going to want to start off as a corporation right off the bat, in my opinion.
John Paul: I agree. So until next time, see you then.
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