The Difference Between Them
Self-employment refers to an individual who operates a business as the sole proprietor, as a partner in a partnership, independent contractor, or consultant. As a self-employed writer you are personally responsible for all liability and must claim self-employment income. Being self-employed indicates that there is no separation between yourself (proprietor) and the business.
Incorporation is the formation of a new corporation. This is the process of creating a distinct legal entity separate from the business owners/shareholders. Unlike self-employment, by incorporating, liability is transferred from the individual owner to the newly formed legal entity thus protecting the personal assets of the individual owner/shareholder.
Pros and cons of self-employment
- Control, you are your own boss. As a self-employed writer you are free to set your own hours and take only the jobs that best suit your personal writing style.
- Tax deductions. As a self-employed worker you will have more opportunity for tax deductions than those who work as employees or who incorporate.
- Variety. As a self-employed writer you are able to choose which jobs seem most compelling rather than being confined within a certain scope of writing work.
- Personal financial sacrifices. As the sole-proprietor of your business you may be required at times to use your own personal savings.
- Generally there are no benefits (health, dental and disability).*
- Unpredictable income. As a self-employed person your income will entirely depend on your working habits and how many writing jobs you are able to secure. As with any business there will be periods when jobs are scarce and periods when you will have your choice of writing jobs. Be prepared and plan ahead.
*Under the Fairness for the Self-Employed Act, the Canadian Government has extended Employment Insurance (EI) to self-employed Canadians, recognizing their contribution to the Canadian economy and development.
Pros and cons of incorporation
- Protection of personal assets. Incorporation is essentially the creation of a legal entity that is separate from the business owner and therefore will be held responsible for any liability and financial obligations.
- Salary. By incorporating you become an employee of the corporation and are paid a salary.
- Tax benefits. The corporation will pay the government a share of your employment taxes.
- Protections from liability. Because incorporation is the creation of a separate legal entity, should any legal action ever be taken against your business you are personally protected (legally and financially) and not held liable.
- Administration costs. The administration costs are more expensive with a corporation than with a partnership or a sole proprietorship. Administration costs include incorporation costs, annual financial statements and annual corporate income tax return.
- Losses. Losses in an incorporated business can't be personally claimed.
Steps to incorporation
There are two types of incorporation in Canada, federal and provincial. Both can be used to protect your business.
- Provincial: Your Corporation will have the right to only establish and carry on their business in the province/territory that the corporation has been registered in.
- Federal: A corporation is able to product their business in all provinces and territories. Your corporation will be authorized to continue business should there already be a company doing business under a similar name.
If you are setting up a one person or small non-reporting corporation federal incorporation most likely is not the best option, provincial incorporation will generally serve the needs of a small business.
To file an incorporation application you will need to follow these general steps:
- Choose whether to incorporate federally or provincially
- Choose your corporate name. This will be a three component name including, a distinct portion that identifies your corporation, a description of your particular activities, a legal element that identifies the business as a corporation.
- Your corporate name will have to be searched and reserved.
- Prepare your incorporation documents including the memorandum, articles of incorporation and notice of office.
- File your incorporation documents and pay the incorporation fees.
Saskatchewan Corporation Branch: Corporate Registry - to incorporate, register a sole proprietorship, etc.
Resources for the self-employed and incorporated
- Canada Business, Government Services for Entrepreneurs: Provides information on a variety of topics ranging from taxes to grants and hiring/managing staff.
- Canadian Federation of Independent Business (CFIB): Membership is required
- Canada Revenue Agency: Gives general information concerning taxes in Canada.
- Industry Canada: Provides information for both businesses and consumers alike.
- Job Bank: Information from Service Canada for Canadians interested in Self-Employment, Telework, or Volunteer work.
- How to be a Self-Employed Writer: The Abridged Version by Rich Gallagher: An article on how to earn a living working as a self-employed writer.
- Writers Union of Canada: TWUC has many resources, such as "Incorporation for Writers” and “Income Tax Guide for Writers” that can be accessed at a cost.