Are you looking to register a sole proprietorship in Ontario? A sole proprietorship is not a complex business structure.
It is an appropriate structure for someone who intends to carry on the business alone, perhaps with the help of employees particularly if limited liability is not critical.
It is not an appropriate business structure if several people intend to participate in the ownership of the business.
There are no registration requirements for a sole proprietorship. The only requirement is that the business may have to be registered, as discussed below.
In setting up the business, the sole owner simply starts operating the business. In addition, if the owner wishes to shut down the business at any time, he or she can do so without any formal processes or filing of documentation.
Unlike a corporation, a sole proprietorship is not a separate legal entity from its owner. The business and its owner are the same legal person, The owner is the ultimate decision-maker.
The owner has the right to all the assets and profits generated by the business but also exposure to all the liability of the business.
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Incorporate Your Business
Are you starting a business in Ontario? Are you looking for a business lawyer?
Book a time to speak to a business lawyer. The lawyers can explain the Business Names Act to you. If you are a sole proprietor, make sure you set up the correct type of business.
There are advantages and disadvantages to being a sole proprietor. If you want to register a sole proprietorship in Ontario, book a time below.
Advantages of a Sole Proprietorship
Ease of formation- the owner of a sole proprietorship can simply start doing business. The only requirement may be to register the business an,e. This structure provides the greatest freedom from regulation.
Inexpensive to set up- no separate capital structure or capital formation is required.
Ease of dissolution- the owner of a sole proprietorship can stop doing business when he/she wants to; there is no need to file documents with a regulatory agency.
More control over the business- only the sole proprietor (the owner) has the ability to bind the business. This is unless he or she authorizes an employee to act as an agent of the owner. Also, all profits go to the owner
Tax advantages- As long as the business was created with the expectation of making income, losses can be written off. This can happen directly against personal income.
Register A Sole Proprietorship In Ontario
The Income Tax Act requires the taxpayer to add up his or her income. This is from various sources and to deduct this or her losses from various sources.
With a sole proprietorship, profits generated from the business are taxed directly in the hands of the sole proprietor. While an owner typically plans on making profits, businesses frequently lose money during the first few years of business.
With a sole proprietorship, the owner is able to deduct these start-up losses from income from other sources of income. This might include part-time employment or rental income.
In contrast, the owners or shareholders of a corporation are not able to deduct the corporations’ losses from their personal income.
This is because business losses are not personal losses. The losses will be the corporation’s losses The corporation is a separate taxpayer from its owners.
There is no double taxation with a sole proprietorship.
Corporations have a double taxation element. If a corporation makes a profit, it will be taxed in the heads of the corporation as a separate taxpayer. When that profit is paid out to a shareholder in the form of a dividend, the shareholder will also pay tax on that same profit.
Thus, the profit of the corporation is taxed twice. The Income Tax Act does contain provisions that attempt to reduce the degree of double taxation, However, these provisions do not always work.
Disadvantages of A Sole Proprietorship
No limited liability– since the business and its owner are the same legal person, the owner is responsible for all liabilities (debts), contracts entered into, and wrongdoings committed by the business.
The owner can be liable to the extent that creditors can claim against the sole proprietor’s personal assets, subject to certain limitations, such as the owner’s house, car, trust fund, furniture, etc.
Only the sole proprietor benefits- the proprietor can write off losses or gain profit.
There might be a lack of continuity in business organization in the absence of the owner. If the owner is absent from the business employees of the business may not be able to make the decisions necessary for it to continue operating.
There will be no name protection. A sole proprietorship has no statutory name protection, whereas a corporation’s name is protected to some degree under the BCBCA.
Family member employees- there are issues, particularly relating to dedicating employees’ salaries when a sole proprietor hires family members.
Name Registration of a Sole Proprietorship
A business name will not be approved by the registrar if the name is:
a) is the name of a corporation that is incorporated
b) is near to the name of another corporation
c) is a name that the registrar disapproved of
The registrar can still approve the name as the business name that was used by the sole proprietor before the corporation first used its name.
Note that a business name cannot conflict with a trademark of another company.
In conclusion, if you want to register a sole proprietorship in Ontario, reach out to us today.
Author: Alistair Vigier is the CEO of ClearWay Law