Looking to hire people, but do I need to incorporate first?

[Dedicated37]

I run a window cleaning business and my partner has become very unreliable so I'm looking to hire one person to start. My business is currently registered as a sole propiertorship and I was wondering before I hire people would I need to incorporate it? I run my business in Ontario, Canada.

I keep hearing everywhere that I have to incorporate it, but two people are telling me that I don't necessarily have to do that.

Thanks in advance.

[Carlos™]

You don't. Not for a business like.....that.

But, if you were running like an official 'legal' company, like, say for example; sales associate at a retail chain - you would have to incorporate. If you ran a cell phone company and you were looking to hire - incorporation.

Another way that you would have to 'incorporate and hire' is if you clean the higher-classed homes.

Its not really a one-way street with regards to this kind of thing. What you sound like doing, is a niche busines - not niche in the way of traffic, but niche from YOUR perspective. You're not trying to make a million dollar business out of it, you're trying to make a living.

[riddings]

I don't know what the laws are like in Canada and for the sake of my response I am going to presume it's a lot like the United States...

Incorporation provides a level of liability protection between you and the organization - the idea is that since a corporation is it's own entity separate from the directors, the directors cannot be help personally liable for debts/liabilities incurred by the corporation... So for example, as a corporation, if an employee breaks a $2,000 window they wouldn't be able to hold you personally responsible if the corporation didn't have the means to pay for the window... However, one thing that SMALL businesses run into is they do not run their corporation as a corporation - meaning, they do not maintain an arms-length distance between themselves and the business...

The legal concept is that is an individual runs a corporation as if THEY are the corporation (i.e. like a sole propreitor) then the corporate veil does not exist, thereby making the individual liable. This happens for example, when instead of getting an hourly wage or salary you just write yourself checks when you need money... Your car and the company car are exactly the same without consideration of when and how it's a company vehicle versus personal vehicle... You use company equipment as if it was your own equipment...

Typically, you can increase a corporate veil viability by increasing the number of directors and creating WRITTEN policies for certain behavior... the more formal the corporate structure the easier it is to defend...

All that being said, typically, a corporate structure for a small business doesn't make much sense - the burden of maintaining a corporation along with the administrative burden just can't be justified in a 2 man show... For one, you'll have double-taxation to deal with... Meaning, you'll pay tax on your income, then pay income tax again when you write your paycheck... In the United States, the IRS has create an 'S' type corporation to remove double-taxation but that business-type has it's own inherent disadvantages... In many courts, the corporation MUST be represented by an attorney, directors are unable to self-represent a corporation...

So, if I were you, I'd got sole-proprietor... You can always change down the road if you need too...

[bizdev]

But, if you were running like an official 'legal' company, like, say for example; sales associate at a retail chain - you would have to incorporate. If you ran a cell phone company and you were looking to hire - incorporation.

Running "an official legal" company has nothing to do with whether or not you need to incorporate. Neither does hiring employees have anything to do with incorporating.

Owners of "real legal" businesses can be sole proprietors or partnerships and can hire employees.

Because so many people have jumped on the LLC bandwagon, the prevailing assumption is that everybody needs to incorporate to protect their personal assets. The fact of the matter is, that even if you incorporate there is no magic cloak that protects you from liability. If you use vendors or rent a space or apply for credit card merchant status, you will need to sign a personal guarantee. That little ole piece of paper renders the "protection" null and void.

Don't waste your money unncessarily. Speak with an attorney about this. First visits are usually free.

[MirageGlobalMarket]

Is your business via online or offline sales?

[bizdev]

Is your business via online or offline sales?

He cleans windows. First line of his post.

[nquinlan]

Um, I agree with a lot of what bizdev had to say. Although the way it works in America is that you have to get Federal Employer Identification Number (FEIN). In Canada it looks as though you need a registered Business Number (BN), and it looks as though there is a website to get your BN: businessregistration.gc.ca I would recommend contacting an attorney however if you plan to license your business in any way besides a sole proprietorship.

[Carlos™]

Owners of "real legal" businesses can be sole proprietors or partnerships and can hire employees.

Problem with sole proprietors hiring employees is that its straight up cash - its an infrastructure that is frowned uponed by some people, like police. In fact, I read in a newspaper where this guy raped a girl and he was a sole proprietor running a taxi company. They revoked his license no sooner than a lawsuit.

Because so many people have jumped on the LLC bandwagon, the prevailing assumption is that everybody needs to incorporate to protect their personal assets. The fact of the matter is, that even if you incorporate there is no magic cloak that protects you from liability. If you use vendors or rent a space or apply for credit card merchant status, you will need to sign a personal guarantee. That little ole piece of paper renders the "protection" null and void.

I wasn't trying to be this kind of "assumption." But incorporated companies are usually better at 'hiring.'

I NEVER. And I mean, I never go working for sole proprietors for the pitfalls of security. They are more likely to put you in lawsuits, release you faster, or 'at the drop of the hat' fire you.