It’s 2019. Resolutions have been made and plans are being followed. If your resolution was to switch from being a permanent employee to a contract worker, you may have a few things you’re wondering about. Contract work is inherently different than being a permanent employee in that you log your own hours, you receive no benefits, you provide all your own working materials, and you are only working at one place for a shorter, set amount of time. So, what is the best way to conduct yourself legally as a contractor? You have two options to choose from: sole proprietorship, or incorporation.
Both options have advantages, implications and disadvantages. Depending on several factors, one option may make more sense than the other. Listed below are both options, and the advantages and disadvantages associated with each.
According to the Province of British Columbia, a Sole Proprietor is “said to be self-employed and performs all the functions required for the successful operation of the business and assumes all the liabilities.” Listed below are some advantages and disadvantages to becoming a sole-proprietor.
- Easy and inexpensive to register – link to register here
- Regulatory burden is generally light
- You have direct control of decision making
- Minimal working capital required for start-up
- Some tax advantages if your business is not doing well (for example, deducting your losses from your personal income, and a lower tax bracket when profits are low)
- Unlimited liability (if you have business debts, claims can be made against your personal assets to pay them off)
- Income is taxable at your personal rate and, if your business is profitable, this could put you in a higher tax bracket)
- Lack of continuity for your business if you are unavailable
- Can be difficult to raise capital on your own
Becoming a Sole-Proprietor is an attractive option, as it is simple and cheap. However, the disadvantages can be serious as you are personally liable for your work.
An incorporation in B.C. is defined as “a legal entity known as a corporation, commonly referred to as a company.” Within incorporation are three types of companies that may be created. These types are known as Limited Company, Unlimited liability, and Community Contribution Company. Below are all of the advantages in self-incorporation.
- Limited liability
- Ownership is transferable
- Continuous existence
- Separate legal entity
- Easier to raise capital than it might be with other business structures
- Possible tax advantage as taxes may be lower for an incorporated business
- A corporation is closely regulated
- More expensive to set up a corporation than other business forms
- Extensive corporate records required, including documentation filed annually with the government (i.e. business tax returns)
- Possible conflict between shareholders and directors
- You may be required to prove residency or citizenship of directors
For more information, these advantages and disadvantages are listed in further detail on the Government of Canada website. Whether you’re a sole-proprietor, incorporated or a permanent employee looking for a new opportunity, check out our job opportunities here.