SOLE PROPRIETORSHIP
A sole proprietorship is an option if you are the sole owner of a small business.
The business is run by a single individual who works alone, frequently referred to as a “self-employed worker” or “independent contractor”.
As a sole owner, you make all of the company’s choices; this may be a benefit if you enjoy making decisions without consulting others. A sole proprietorship is quite simple to create. You simply need to register your business name and apply for a permission and business license. If your company generates more than $30,000 per year, you may additionally need to register to collect the GST/HST. Apart from paying any employees you hired, the remaining earnings are yours.
When you submit your personal income taxes, you can deduct losses if your business fails. The most significant drawback of being a single owner is that you are personally responsible for any obligations you incur. If you create a new credit card account to buy materials, for example, your inability to make payments has a negative influence on your personal credit rating. If you don’t pay back a secured company loan, you risk losing your personal assets. When you’re first starting up, a single proprietorship is ideal. As your business expands, you may want to incorporate to reduce your personal responsibility.
Advantages
There are several advantages to registering your business, including:
1. Easy and cost-effective
A sole proprietorship is a versatile corporate form that may be used to create a food truck, a one-person repair company, or a freelance writing business. You just need to retain minimal documentation for this business structure because you will have fewer paperwork to file.
2. Flexibility and autonomy
A sole proprietorship is the most adaptable business structure as long as your company remains small. Without much expense or effort, you may make every change you wish, including altering corporate regulations and types of businesses. Sole proprietorships also provide you more autonomy and allow you to make quick decisions. You don’t require the consent or approval of partners or officials to make any business decisions, unlike in partnerships or corporations.
3. Banking is simple and straightforward
When you register as a sole proprietor, your banking procedures are simplified. You will be able to make and receive business payments directly from your bank account as a single proprietor, and you won’t have to go through the hassle of opening a business chequing account.
4. Reporting Taxes in a simpler manner
The tax reporting process for a sole proprietorship is extremely easy. You won’t have to bother about submitting separate business taxes. Sole proprietors must complete Form T2125, which involves disclosing professional income and costs.
Disadvantages
Even if everything seems perfect from the point of view of the advantages, there are few disadvantages to keep in mind.
1. Accountability
Your personal, business, legal, and financial situations are all linked because you are your business, not a distinct organization. You are legally and financially responsible for your company. As a result, anything that has an influence on your business will have an impact on you personally (E.g. any debts or losses your business endures will directly impact your own savings and finances).
2. Rate of taxation
You are taxed at a personal income tax rate depending on your total net income (which includes revenue from your business as well as income from other sources such as future employment or investment income), which may add up quickly.
3. Growth is limited
If you want to expand your firm, you’ll need to register as a corporation at some point.
4. The preservation of your name
When you register your company as a sole proprietorship, you have limited name protection. Only the province in which you register your business will safeguard the name you chose. As a result, a business in another province or territory might use the exact same name.
Sole Proprietorship in Ontario
If you wish to run a sole proprietorship in Ontario, you must first pick or develop a business name that does not include a legal ending. If you are managing the business under your name, you don’t need to register, but the Ontario province will ask you to fill out and return a form before you get started. You may also be needed to register the business name when creating a business bank account as a sole proprietorship, similar to how a corporation would in Ontario, or when requesting CRA tax accounts. You must open an account with Service Ontario if you have a name that is different from your personal name.
In conclusion, a sole proprietorship is a good idea if you have created a brand new business and you are by yourself, but if you wish to enhance profit margins, share losses, have easier access to money and have financial control over a business that can last indefinitely, then you have to set up a corporation.
The processes to incorporate a firm differ by location, just like with the sole proprietorship.
Contact us today to discuss which type of structure is the best option for your business.
The first consultation is free.
