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Firstly, when someone sues the business, your personnel assets are somewhat protected. (There have been cases of 'piercing the corporate veil' e.g. getting at directors assets.)
Secondly, if partnering, then you will take the time to draw up a legal partnership agreement. This allows easier extraction of one or more of the partners because the terms are known in advance.
Thirdly, it somewhat separates the founder from the business and can make it easier to sell later. However, sole proprietorships can also be sold.
You should check with legal advice whatever you do (your countrie's laws will vary from Canada's). Most universities have a free legal consulting arm with law students but they will know the basics. Alternatively you can check out a book at the library on incorporation (try a do it yourself book as it will explain the legal implications of whatever route you choose).
My last comment, if you are contracting and bringing in cash, you have a business.
Best of luck,
A proud Canadian
Do it to protect yourself, dealing with SEO is a risky business what if you get their site sh1tlisted and then they come after you, hell it could be something that you didnt even do.
Still having the business in front of you helps you out. Its a nice way to do things.
We are UK based, and made ourselves a 'limited company' before we took the first order.
You have to protect yourself against excessive litigation, otherwise you may end up losing the house, the car, the hifi etc.
Given the judicial systems knowledge of the Internet, I wouldn't trust them to find in my favour even if I had a cast iron case.
Hopefully, it will never arise - best be safe though, eh.
Also if you give yourself the appearence of a larger company you will find yourself trying to emulate what is on paper. As they say the best way to become successful is to act successful.