Sole Proprietorship
How Professional Advice Benefits You
The decision to become self-employed is followed immediately by the choice of one of the three business models: sole proprietorship, partnership and incorporation.
All have unique advantages and disadvantages and often circumstances will determine which one suits a specific individual’s particulars. But whatever you choose, an informed decision is the best decision.
For many people, sole proprietorship is a good fit:
- Registration is relatively simple. It’s inexpensive to open a business account, research your proposed business name and obtain an HST number.
- Business operations are less foreboding than the other models.
- The business can be a natural outgrowth of a hobby or skill set.
- Owners pay only one set of taxes.
- Owners retain the full profit that their company earns.
How Professional Advice Benefits You
Begin your venture by filling out a registration form and paying the small fee of approximately $60.00. But you should also upgrade your knowledge, not just in your skill set, but in small business practices, financing and legal requirements. Obtaining professional advice can help you to avoid mistakes or omissions along the way.
Some things to consider are:
Regulations
Research for any regulations that might affect your business operations. For example the Ontario government’s website says, if “you plan to – or currently – operate a business in Ontario, you could be affected by certain government regulations.” It then lists recent, current and proposed regulations.
Laws
Consider laws that can affect your business. For example, the Ontario Disability Act of 2005, updated as of Jan 2014, is a law with which you must comply; you need to know whether it will affect your company and to what extent. The government provides excellent information on its website, www.mcss.gov.on.ca/en/mcss/programs/accessibility; if you discover that this can affect your company, then you should plan for compliance.
Hiring
At some point, you might consider hiring additional help. This introduces such considerations as source deductions, payroll and registering with the WSIB, even for a family member. You will become responsible for the fees as well as various work-site related obligations. Ignorance of the WSIB or any government policy is not bliss; it’s much better to know both your rights and responsibilities as an employer.
Take the Opportunity when Governments are Pro-Business
Sometimes the news from the government can be beneficial: In 2011, the Federal government introduced a number of initiatives including:
- Reducing the small business tax rate from 12 per cent to 11 per cent.
- Raising the amount of business income eligible for that rate from $300,000 to $500,000
- Reducing the burden of federal regulatory requirements on Canadian enterprises. (Department of Finance Canada).
Legal advice: Plan for Success and Protect Yourself
While you plan for success, you must also protect yourself from business failure, bankruptcy and personal liability. Should there be any loss or lawsuit, you are liable. In a sole proprietorship, your personal assets, including your home and bank account are vulnerable. You must obtain solid legal advice and ensure that you have a knowledgeable insurance agent who will arrange for protective coverage.
Being self-employed can be an extremely rewarding and profitable experience, but you need to make smart decisions and avoid the pitfalls. To help you make the choice which best fits you and your circumstances, and to navigate the complexities of laws and regulations even for sole proprietorship, Howard Nightingale Professional Corporation has accumulated a wealth of experience in the commercial and corporate law sector.
Frequently Asked Questions
While the registration process is simple, legal advice is critical for drafting client contracts, reviewing commercial leases, and ensuring you are compliant with specific industry regulations (like the Accessibility for Ontarians with Disabilities Act).
A sole proprietorship has one owner. A partnership involves two or more people carrying on a business together. Partnerships require a formal Partnership Agreement to define how profits, losses, and liabilities are shared among the partners.
Yes. This is a common path for growing businesses. When your income exceeds what you need for personal expenses, or when your risk level increases, you can “incorporate” the business. This process involves transferring assets to the new corporation, often through a “Section 85 Election” to avoid immediate tax hits.
No. A Master Business Licence only allows you to operate under that name. It does not provide trademark protection. If another business incorporates under a similar name or trademarks it, you could be forced to change yours. We recommend legal consultation to check for name conflicts early on.
Yes. You can hire employees, but you must register for a payroll account with the CRA, handle source deductions (CPP, EI, Income Tax), and comply with Ontario’s Employment Standards Act and WSIB requirements.
In Ontario, you must register for an HST number if your gross worldwide taxable revenue exceeds $30,000 in a single calendar quarter or over four consecutive quarters. Even if you earn less, you may choose to register voluntarily to claim Input Tax Credits (ITCs) on your business expenses.
You do not file a separate corporate tax return. Instead, you report your business income and expenses on your personal T1 income tax return using Form T2125. Your business income is taxed at your personal marginal tax rate.
Yes. This is the primary risk of this model. Because the law sees you and the business as one entity, your personal assets—including your home, car, and personal bank accounts—can be seized to satisfy business debts or legal judgments.
If you are operating the business under your own legal name (e.g., “John Doe”), you do not need to register. However, if you add any words to your name or use a different name (e.g., “John Doe Consulting” or “Apex Services”), you must register a Master Business Licence with the Ontario government.
A sole proprietorship is the simplest form of business ownership where there is no legal distinction between the owner and the business. You are the sole decision-maker, entitled to all profits, but also personally responsible for all debts and legal liabilities.
Your information will always remain private and confidential.