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Thread: Corporate Entity vs Proprietor?

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    Corporate Entity vs Proprietor?

    Hi,

    As a newbie building my first site I was faced with deciding how I was going to set up my new business i.e. corporation vs a proprietorship. I decided to keep it simple for now and not incur the expense of establishing a corporation as I can always roll it into a corporation at a later date.

    I am curious as to how many other newbies have chosen this route vs starting a corporation right away? As well I was wondering from the experienced people if they also started this way and at what point, specifically how much time had passed since starting, did they decided to establish a corporation and what triggered the decision to do so?

    Thanks

  2. #2
    Moderator Kay is a Premium Member
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    I only know about the British way of doing this, but I expect it's very similar in Canada. People are usually advised to start out as a sole trader (and keep good financial records!) until they grow enough to make incorporation worthwhile. There can be tax advantages to becoming incorporated. It's very easy and cheap to set up a company in the UK but the reporting requirements required by law can be onerous, so it's best not to jump into it.

    There are other reasons why people choose to become incorporated, eg to create a separate legal entity for whatever reason.

    There are many similarities between online and offline business, as well as many differences (particularly in valuations and due diligence). However, IMO, there is little difference between the two when it comes to deciding whether or not to become incorporated, and if so when. As you say, you can start out as a proprietor and become incorporated later. Given that you have lots of experience with offline business, I suggest that you approach the incorporation issue in exactly the same way.

    Edit:

    Sorry, I didn't answer the question properly. I started my first site in Feb 2000, and it was mostly a hobby site (writing and publishing articles about living abroad and travel). I realised that there could be some advantages to incorporating as a business, particularly to create a separate legal entity. It didn't make enough money at that time to be concerned about about possible tax advantages. I incorporated it in Feb 2001. As I grew my "empire", I found it convenient to do other business activities under the umbrella of the company. (Now I'm starting to fragment it a bit, but that's a story for another day.)
    Last edited by Kay; 8 December 2013 at 11:19 pm. Reason: addition
    British Expat - helping people to live and work abroad since the year 2000.

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    Marketing Mentor Mikl is a Premium Member
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    I pretty well agree with what Kay said (except that I don't agree that the reporting requirements for corporations are particularly onerous [in the UK] - at least, not unless it's a public limited company, but that's not what we're talking about here).

    As I see it, the advantages of incorporation are:

    1. It provides you with limited liability in case you go broke. Indeed, that's the whole point.

    2. It can make dealing with the tax authorities much simpler. Instead of having to account for each income stream separately (for tax purposes), you can put all your income "through the company", and simply present your final profit or loss figure to the tax people.

    3. It helps make you look more like an established business in the eyes of your customers (perhaps).

    The main disadvantage is that it will require a certain amount of cost and effort to set it up, which you probably prefer not to have when you are just starting out. For that reason, I would agree with Kay's advice: start out as an individual trader, and consider incorporating once you feel you can cope with it.

    Mike

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    Thank you Kay and Miki for your response. Just pondering how a newbie addresses this question and if it has much significance on whether they proceed or not, and continuing further what do they perceive as the obstacles when dealing financially with another country? Or perhaps these are points which are not given much thought to in the beginning... just curious.

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    Moderator Kay is a Premium Member
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    I've generally found that newbies tend to fall into two camps when thinking about incorporation. Either they don't think about it at all because they have plenty of other things to think about with getting a new start up going or they tend to fret over it for ages because they don't know what's involved and they worry about it being more difficult than it actually is. For someone with offline business experience, such as yourself, it's nothing at all to worry about, because the the process of incorporation is exactly the same for online or offline businesses.

    The paperwork involved isn't complex and it's easy once you get in your stride but to start with it can be difficult to get all the right docs to the right place at the right time. For example, when I first incorporated my business, the income tax people kept hounding me to submit various bits of paperwork about our employees. It seemed to take ages to get it into their heads that the company didn't have any employees. For a while we had to submit "nil returns" every month for employees' income tax, until they finally got the idea we didn't have any employees. Also, there are various annual returns and statements which have to be submitted on time or you risk a fine - to Companies House and to HMRC. Mikl's company is in a different legal jurisdiction from mine (there are three in the UK) so there may be some differences between them even though Companies House and HMRC are nationwide, and no doubt Canada will probably have its own way of dealing with things.

    Receiving payments from foreign countries shouldn't be a problem either, but it depends on how you're monetising your site and how you plan to make and receive payments. Sometimes currency exchange can be problematic - some banks slap on hefty exchange fees. If you're doing e-commerce, then you should have a shopping cart and and payment processor. These generally work in multiple currencies so you shouldn't have a problem. If you're monetising via affiliate earnings, then some programmes can be awkward for non-US residents. (There are often ways around this.) Several programmes pay out in multiple currencies, eg AdSense. Other programmes will pay you via PayPal and you can have multiple currency accounts within your main PayPal account. In cases where you don't know/trust the other party or if there is a large sum of money involved, then you'll probably want to use an escrow system.

    It doesn't hurt to look ahead but there's not much point in worrying about some of these things before doing some of the basics. I would say you'd be better to figure out how you want to monetise the site, then ask how you will make and receive payments and what the potential problems might be before deciding whether or not to go ahead with your idea. Otherwise you could end up analysing these details for various types of business models including those which you might have no intention of doing.

    (BTW - on this forum, if someone wants to thank another for a helpful posting we encourage the use of the "thanks" button. It's the green thumbs up below every post.)
    British Expat - helping people to live and work abroad since the year 2000.

    The joy of Internet delivery - the cartoon illustrating this will make you laugh!



  6. The Following User Says Thank You to Kay For This Useful Post:

    BrentM (10 December 2013)

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