Curv Health does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should feel free to consult your local tax, legal and accounting advisors, in addition to your college, before building your practice!
Corporation - What is it?
- A corporation is a business structure where the company itself operates as a separate entity from the people who run it. This provides maximum protection for the owner and employees of the business, whose personal assets are less at risk if the business encounters any financial problems or legal issues.
- Legal formalities: Corporations typically have more stringent requirements for getting started than a sole proprietorship might have. A corporation typically needs "articles of incorporation" on file with their province before they can operate as a business entity.
Corporations - Some of the Pros
- Tax advantaged: often lower corporate tax rate vs. personal income
- Debt: often stronger ability to raise & re-finance
- Liability: often limited libaility (separates personal assets from corporation assets)
- Ownership: often the ability to raise equity financing from others, however some collleges limit shareholders in health corporations to only other members of the college (i.e., the Ontario College of Physiotherapists states that other shareholders in your physiotherapy health corporation can ONLY be other card carrying members of the college)
Corporations - Some of the Cons
- Expenses: Another key difference is the expenses that accompany each type of business. The setup, maintenance, and general operation of a corporation typically are far greater than other organizational formats.
- Registration fees: Nation-wide incoropration services can be expensive! $500 in the USA or Canada
- USA: online providers like Stripe Atlas (link here) have good reviews for the cost of USD$500
- Canada: online providers like RBC's Ownr (link here) have good reviews for the cost of CAD$499
Sole Proprietorship - What is it?
- A sole proprietorship is a business where only one person claims ownership of the company. As the sole owner, you're responsible for running, maintaining, and updating the business, making all of the important decisions, and ensuring you're in compliance with provincial and federal laws and business tax requirements.
- Ownership: The main difference between a sole proprietorship and a corporation is the ownership structure, where a sole individual owns and operates a sole proprietorship and multiple people own and operate a corporation.
Sole Proprietorship - Some of the Pros
- Less expensive to begin vs. a Corporation ($50 startup fees in Canada - link here - vs. $500)
- Taxes: Sole proprietors can deduct business expenses from their personal income, which may put individuals in a lower tax bracket, reducing their potential tax burden. Corporations typically don't have this option, but may have access to corporate-specific tax benefits.
- Proprietorships are regulated by governments, but generally to a lesser extent than corporations.
- You’re in charge! You get to make all the decisions, with no need for approvals from shareholders or board members.
Sole Proprietorship - Some of the Cons
- Liability: Sole proprietors typically have much less legal protection for liability of business activities, where the individual might take on all the company's liability. A corporation is a legal entity designed to protect the company's employees from such liabilities, including financial and legal liabilities.
- If your business starts to become very profitable - this may mean you pay more in personal taxes, as these rates tend to be higher than corporate tax rates.
- If you need or want to raise capital for your business, this might be harder to do as a sole proprietor. Many investors or banks would only lend to or invest in an incorporated business.