April 1, 2022
How to Select Your Business Structure as a Freelancer in Canada
So you’ve decided to take your freelance business to the next level, and get it registered. The type of business structure you set up affects almost every area of your business including taxes, operations and liability.
It may seem tedious, overwhelming and involve way too much paperwork- but trust us, it doesn’t have to be! Read on as we dive into different business structures and what they entail, so you can decide which one works best for you.
You may be wondering, do I need to register my business? In Canada, you are not legally required to do so if you’re using your legal name as your business name. Once you decide to use a different name for your business, you are required to register it.
So what are the main business structures in Canada?
- Sole Proprietorship
Each of them has its own set of pros and cons that you should consider before committing.
Sole Proprietorship is the least complex business structure with the lowest startup costs. It is owned by one person who carries the sole responsibility for all business related decisions. Keep in mind that you would also assume all the risks related to your business, which extends to personal property and assets.
As a sole proprietor, you pay personal income tax on your business’ earnings and subtract business losses (expenses and deductions).
Partnerships are similar to sole proprietorships, but instead of one business owner there are two or more. This type of structure is typically governed by a written agreement that specifies the rules for division of income and responsibilities. Similarly, partners are responsible for any liabilities that the business may incur. Each partner includes a share of the business income or loss on a personal income tax return.
A corporation is a slightly more complicated business structure than those previously mentioned. You have the option of incorporating provincially, federally or both, depending on where the business operates.
Due to their separate legal entity, corporations are taxed separately from their owners with tax rates that are generally lower than personal income tax rates. Owners are usually paid as employees of the corporation, which creates a number of possible tax advantages.
Another advantage is limited liability, meaning there is a legal distance between the business and the owners. Your personal assets would not normally be at risk if the business incurs debts or goes bankrupt.
Lastly, you have the ability to transfer ownership if you sell your business and the corporation will continue to exist even if the owner passes away.
It’s important to understand your options for your business’s structure, their tax implications and their advantages and disadvantages. And once you’ve made the decision, getting started doesn’t need to be complicated.
Women Who Freelance has partnered up with Ownr by RBC Ventures to bring our members an exclusive discount on services including business registration, incorporation and other tools for growing your business.
With Ownr, you can digitally register or incorporate your business in minutes with all the business documentation and filings to help you remain compliant. It’s super fast and easy!
* As we believe in full transparency with our community, it’s important we disclose that we may receive commissions when you make purchase using the link above. Women Who Freelance carefully curates all affiliate partnerships to ensure they are trusted and bring maximum value to our community.
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