Many people new to the world of self-employment wonder just how they go about the whole affair of setting up their own business. Do they need to incorporate? What about registering the business? Who do they tell about the business? When do they even become a real business? The waters of legal entities for freelancers seem murky for swimming.
The answer is that you’re a business owner when you say you are. A sole proprietorship business exists from the minute you begin conducting your affairs.
You aren’t required to register your business if you don’t want to. Your sole obligation is to report the income that you earn to the government as a self-employed individual.
Of course, there are different forms of business your venture can take, depending on your needs. Most freelance writers function very well at the self-employed individual level running a sole proprietorship business. They don’t need to take things any further than that.
Some register their business, because it provides a little bit of peace of mind, a confirmation that yes, indeed, Business X exists.
A registered business doesn’t really provide you more benefits than a sole proprietorship – in fact, registering a sole proprietorship in Canada doesn’t give you any huge benefits beyond confirming your business name in governmental databases.
Your business name isn’t even protected. It can be used by other businesses, to some extent.
Incorporation? Sure, you can do that. I know some people who prefer having their business as a separate entity. If it fails, they lose no money out of their own pockets and don’t go bankrupt. They also can’t take money out freely when the corporation does well.
Keep in mind that incorporation involves three people, not just one person. You don’t call the shots alone anymore.
That’s also true if you decide to have a partnership. Two people own one business and that means written agreements and profit sharing. You can register a partnership in Canada and have no written agreement – a bad move, if you ask me. What happens if the relationship hits the rocks?
There is also the option of an LLC (limited liability company) for our American friends. This is a type of legal entity that is a cross between sole proprietorship and incorporation. It protects your assets – and you can register an LLC without grouping with other people.
Take a look at your needs, where you plan to go with your business, and how big you want your venture to be. Choose the best legal entity for those goals.
[tags]legal entities, freelance business, type of freelance business, registering a freelance business[/tags]
