Nicolas Guevara-Mann | Queen’s Business Law Clinic | August 2021

Editor: Mikela Page

Sole proprietorships are unincorporated businesses formed by a single individual who has chosen to produce goods or offer services to the public with a view to making a profit. They are, by nature, informal and one of the easiest and least expensive forms of businesses to set up and operate.

Unlike a corporation, there is no distinction between the business and its owner in a sole proprietorship. This means that the owner is personally responsible for any debts or liabilities incurred by the business, and they retain all profits made by the business. The business owner is the business meaning they retain all of the decision-making powers and own all of the assets.

No separate business tax return has to be filed with the Canada Revenue Agency. All income generated from the business is reported on the business owner’s personal tax returns. This also means the business owner is able to deduct all expenses relating to the business from their personal income. For a start-up business that is losing money in its early years, this option of deducting business losses can help reduce the individual’s tax payable.

If a sole proprietor operates under their own full, legal name, they are not required to register their business name in Ontario. However, operating a sole proprietorship in any name that is not the business owner’s own name requires registration of the business name. In Ontario, the rules for naming a business are governed by the Business Names Act. Registering a business name requires a registry search to ensure that no other existing names are similar to the proposed name. After registration, names in Ontario must also be renewed every five years.

Operating a sole proprietorship is a highly informal process. Unlike a corporation, with its separate legal entity and perpetual existence, a sole proprietorship is no more than the business owner. This means the business cannot be transferred, and if the sole proprietor dies, then so does the business. The founders of a corporation, on the other hand, can pass away and the corporation itself will remain fully functional and able to conduct business.

There are several benefits to operate as a sole proprietor. There are no formalities involved and you will have absolute control over business decisions. However, a drawback is that you will be fully exposed to the liabilities of the business.

Choosing the optimal business vehicle from the outset will save you time, money, and energy which you can better put towards growing your business instead. Make sure to consult legal, accounting, and tax professionals before deciding if a sole proprietorship is appropriate for you.

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