When the entrepreneurial spirit of the self-employed is in full swing and ideas are flooding in for setting up your own business, it’s essential to understand the legal implications of the different forms a company can take.
If these implications seem unclear to you, don’t worry, Lexstart is here to enlighten you!
In this article, the status of entrepreneur will hold no more secrets for you!
Becoming self-employed: a step towards independence
When someone exclaims “I want to be my own boss!”, they are often expressing their desire to become self-employed. This form of enterprise boils down to a single natural person, the entrepreneur. This is the simplest and most straightforward business structure, with relatively low costs and legal formalities. The entrepreneur, as sole owner, holds all the powers of management of his or her sole proprietorship.
Tax advantages to consider when you are a self-employed
From a tax point of view, the sole proprietorship offers simplified and often advantageous treatment. Since there is no legal distinction between the assets of the company and those of the entrepreneur, the company is subject to the tax rules applicable to private individuals. This allows the entrepreneur to deduct all business-related expenses from business income, and to be taxed only on net profit. In addition, the sole proprietorship can benefit from certain tax credits available to individuals, which can be a considerable financial advantage.
Points of caution and limitations
However, despite its many advantages, sole proprietorship also has its drawbacks.
Firstly, the absence of any legal distinction between the entrepreneur and his or her business exposes the latter to the risk of personal liability in the event of damage caused in the course of business activities. In other words, in the event of a dispute or unpaid debt, creditors could take direct action against the entrepreneur’s personal assets.
Secondly, the entrepreneur does not enjoy the social benefits reserved for salaried employees, such as contributions to the Quebec Pension Plan. In addition, it may be difficult to attract investors, as the entrepreneur cannot offer equity in exchange for their investment, unlike a corporation.
In addition, it can be more difficult to sell a sole proprietorship, as this involves selling its assets separately. This can complicate the transaction and reduce its attractiveness to buyers. In contrast, a company can sell its shares, offering a simpler and often more attractive transition for investors.
Finally, it is important to note that a sole proprietorship is intimately linked to the person of the entrepreneur, which means that its existence ends with the death of the entrepreneur.
Conclusion
If you are self-employed and feel the need to put in place solid legal contracts to frame your activity, or you wish to register your sole proprietorship, Lexstart can assist you in your dealings with the Registraire des Entreprises du Québec and help you validate your contracts to ensure optimal legal protection. If you have any specific questions about setting up your own business, our team will be happy to answer them by clicking here.
