JOWITA BYDLOWSKA, Staff Writer

So you have your self-employment idea all worked out and now all you have to do is get used to being your own boss, right? Wrong. You still need to figure out things like whether to register as a small business or to incorporate. If you're thinking of incorporating, you have to know all the implications. And remember to always get a professional to help you because you will have to jump through some major hoops -- mainly administrative and financial. But if you're expecting big bucks to roll in, read on. We may be able to get you started.

Incorporation: What is It?
If a business is incorporated it becomes a legal entity that is called a corporation, also referred to as a "company." A corporation is, legally, a separate entity, like a person -- it can go into debt, sue or be sued, acquire assets, even be charged with crime. When a business is incorporated, it exists until it is dissolved. In fact, it can exist even when a shareholder (you, the owner) passes away. It is easier to raise money for a corporation than it is for a small business.

It Takes All Kinds
Most self-employed people work as independent (freelance) contractors, consultants, business owners, commissioned salespersons, or farmers and fishermen. Unlike employees, contractors work independently, which means that they self-advertise, often have no direct supervision and work their own hours. They also own their own tools and usually don't receive any employee benefits, such as dental care. The Canada Revenue Agency (CRA) considers self-employed persons to own a business from which they profit. Self-employed persons have to file their taxes accordingly.

They Want You to What?
In the '90s Microsoft was sued by a group of long-term contractors who wanted employee benefits such as purchase of Microsoft stock. Since then, it's been quite common for the IT industry to ask independent contractors to incorporate -- that way IT companies are further protected from a regular employer-employee relationship and therefore do not owe anything to their workers other than a pay cheque.

Registering as a small business is usually a better alternative than incorporating. It makes sense to incorporate if you won't have to take money out of your company's revenue to support yourself. If you incorporate, you will lose the ability to deduct business expenses against your personal income. In order for you to receive money from the corporation, it must pay you a salary -- the corporation will make withholdings and remit them to the CRA. This adds to the administrative costs and additional government filings for both you and the corporation.

If someone offers you a job asking you to incorporate, find out right away if you could operate as a small business instead. You can set up a small business in Ontario for about $60 and it's easy to get a GST number and open a small business account at your bank without any additional headache.

The main advantage of incorporating is that if you set up as a corporation, your liability is limited and you are not responsible for your company's debts. If your business goes belly up, you will lose your investment but cannot be sued by creditors even though you own the company.

Why (Not) Incorporate?
In the first five years of running a business, it's not likely that you will make large profits. If you incorporate before making a profit, you may incur a number of unnecessary legal and accounting costs ($4,000 to $5,000 yearly). The bookkeeping costs to look after this will run from $1,000 and up.

As a small business, you have to claim all your earnings, although you are also able to deduct any business-related expenses. When you incorporate, your business is a separate entity -- which is great if you are making a pile of money because you can leave the money earned in your business and you are taxed at a much lower rate. On the other hand, if you do need all the money to live on, there is no tax advantage -- you will be paying yourself a salary, which you will be taxed on anyway.

Being incorporated allows you to split income between other family members. As a corporation you also have limited liability and your business may have an easier time raising capital and getting business loans.

If you decide that it makes sense to start a company, you will need the following:

• Before you pick a name for your company go to NUANS, a search system that makes sure the name you pick is available.
• Complete the Articles of Incorporation form.
• Register your business with the CRA and obtain a GST number.
• Get an accountant -- your bookkeeping will get much more complicated.

Incorporating is a complicated business in more ways than one. As a corporation, you'll have to file a separate tax return for your company, designate fiscal year-end, schedule board meetings, maintain accurate corporate records and decide on share structure among other conditions. Examine your business options carefully.