Sole Proprietorship VS. Incorporated - What makes the most sense for your Real Estate Career?

 Sole Proprietorship VS. Incorporated

Before we dive into what's best for you; we should first understand what each of these terms mean:

Sole Proprietorship: 

A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner.

Incorporated: 

Incorporation is a form of business ownership that creates a distinct legal entity separate from its owners (shareholders) unlike legal business structures such as sole proprietorships and partnerships. When a corporation is created, each owner is issued shares proportional to the percentage of ownership.

Now that we know the difference between the two; what does this actually mean for you? And what is the best way for you to go in your Real Estate career? Before we dive too deep into things, I would first recommend that you consult your accountant to ensure you are making the BEST decision for you! Meaghan Hamel, CPA chats with MaxWell Devonshire Realty about the difference have a watch!

Regardless of which option you choose; you are still ultimately responsible for your actions when practicing Real Estate. And it's you who holds your license and must follow all of the rules and regulations. All that changes is how you get paid from the Brokerage.

So why would you want to incorporate? Well it really all depends on what your goals are. . You're going to either be operating as a numbered company OR you will have to get a TRADE NAME for your corporation. You will also have to register your corporation to ensure no one else has the same one; which has set up fees and annual fees. If you're planning on leaving money in your corporation then it could be a good idea. As you will pay corporate taxes on your commissions which is a lower tax rate. Plus if you buy assets or investments through your corporation you then will be adding in an additional layer of protection for yourself. If you personally pay yourself in dividends then you could also be paying less in personal taxes. You also have the option of paying yourself a salary but then would need to do the proper employment deductions. The downside is that you will be paying tax twice; once through the corporation and then again personally. Depending on how you pay yourself personally, you may not be increasing your RRSP contribution room. And it can be more difficult to be approved for personal lending. You will also need an accountant to file your returns and prepare your financial statements. Typically REALTORS® that get paid to a Corporation are higher end producers and/or those looking to purchase some rental properties in the corporations name. 

So being a sole proprietor is the best choice for me? Well the good news is that you get to operate using your personal name. You still have the of getting a trade name but its much less common. All of your commission income is going to be taxed at a personal tax rates; which is higher than corporate rates. But because of this, you are creating RRSP contribution room. Which can be a great retirement investment. It's easier to borrow personally but any properties bought would have to be in your personal name, potentially opening you up to more liability. You still qualify for business expenses and having the ability to write-off business expenses to come off of your income. It's most common for REALTORS® to operate as sole proprietors, especially when they're first starting out. The good news is; whichever one you select, you can always change later.