Sole Proprietorship 101: What it Is and How it Works
If you plan on forming a business in Ontario, or any other part of Canada, there are several forms of business ownership you can choose from. One that might be especially appealing to a small business owner is a sole proprietorship. This is the easiest type of business to establish.
There are over one million small businesses in Canada, and many of these are sole proprietorships.
This form of business is extremely popular among consultants, individual self-contractors, and sole owners of businesses. In fact, a good amount of sole proprietors simply do business under their personal name because it’s not necessary to register a business name.
But what exactly is a sole proprietorship? And how does it work? Don’t worry, we’ve got the answers.
So continue reading and we’ll walk you through everything you need to know!
What Is a Sole Proprietorship?
A sole proprietorship is a business that has a single owner. This owner is responsible for all liabilities, which are the debts that a business owes to third-party creditors.
A sole proprietorship is one of four ways to form a business in Canada. The other options are a corporation, partnership, or a cooperative. Each of these types of business has its own accounting, legal, operational, and tax requirements.
As we mentioned earlier, the easiest way to form a business is by creating a sole proprietorship.
After you’ve established your sole proprietorship, you and your business will be considered the same entity from a legal and tax perspective. Because of this, you might want to retain the services of an attorney as well as accounting and tax experts to help you with the financial and legal aspects of running a business.
The Advantages of Forming a Sole Proprietorship
First off, it’s extremely easy to form and operate a business as an individual when you form a sole proprietorship. You can run the business under your own name or under a different name that you’ve decided on. You just can’t use any of the legal designations of other types of businesses, such as Inc. or Ltd.
Perhaps the biggest advantage of operating a sole proprietorship is that setting up and running this type of business is fairly simple and inexpensive. For example, in the majority of provinces, you don’t even have to register as a business if you run your sole proprietorship under your own name.
It should be noted here that even though the general process for setting up a business is the same, no matter which part of Canada you reside in, the details can differ between provinces and territories (we’ll go over how to register a sole proprietorship in Ontario a little later).
Even if you are required to register your sole proprietorship with your province, it’s going to cost you a lot less than registering as a corporation. And while you might have to renew your sole proprietorship business registration every five years in a province like Ontario, you won’t have to make annual filings.
Another major advantage of running a sole proprietorship is that taxes are fairly simple to complete. When you’re a sole proprietor, you’ll put your business income on your personal income tax form instead of filing it separately.
And lastly, as a sole proprietor, you’ll own 100% of your business. You get to decide all business decisions and you’ll be responsible for how it runs and how successful it becomes.
How to Form a Sole Proprietorship in Ontario
The first thing you’re going to have to do is pick a name for your business. If you choose your own name without any additions, then you won’t need a business registration. But if you choose any other name for your business, you’ll have to register with the Central Production and Verification Services Branch of the Ministry of Government and Consumer Services.
Keep in mind that simply registering a name for your business won’t guarantee you exclusivity of that name. If you want to be the only business with your name, then you’ll want to look at incorporating or register a trademark. With that said, if you do register a name that’s nearly identical to another business, you might end up with a lawsuit on your hands.
Because of this, it’s recommended that you do some research to make sure that you aren’t using any names that are already registered. You can do a NUANS Preliminary search to see if there are any business names that are similar to yours.
After you’ve picked a business name, you’re ready to actually register your sole proprietorship.
To register your business, you’ll need to give the address and name of your business. You’ll also need a description of what your business does, your own name and home address.
After you’ve successfully registered your business, you’ll be given a Master Business Licence (MBL). This will act as proof of business name registration for banks and other financial institutions. You’ll have to renew this license every five years.
The Importance of Knowing About Sole Proprietorships in Ontario
If you’re planning on starting a business in Ontario, it’s important that you understand all of the options and tools at your disposal. By learning about the different types of business that you can form, especially something as simple and inexpensive as a sole proprietorship, you’ll be able to optimize your business plan and set yourself up for success.
With that said, it isn’t always easy to know where to start when forming your own business. Luckily, we’re here to help. Contact us today and see how we can help you register your business!