Starting a Business as a Sole Proprietor!


A business can be set up as a sole proprietor, partnership, or corporation. Let’s discuss the few advantages and disadvantages of sole proprietors and corporations.
A sole proprietor can start a business immediately without worrying about the cost of incorporation or making a decision about the share structures. However, to conduct a business using a name other than your own name, you must register with the provincial government.

A sole proprietor is personally liable for the debts of the business. Personal liability is a huge factor when there are substantial assets, lots of debt, and several employees.

Because the sole proprietor’s business profits and losses go directly to the individual’s income tax return, this type of business structure is considered a flow-through entity for tax purposes. One of the benefits of a sole proprietorship is direct taxation. This is a great advantage during the early years when losses tend to be more common. Any losses in the business can be deducted from personal or other income as long it’s not the owner`s hobby.

If the business is incorporated, any losses incurred by the corporation must be applied against the corporation’s income and cannot be used to offset personal income. If you cannot utilize the losses in the year they occur, they can be carried back for three years and forward for 20 years to offset past or future income.
Another thing to note is any profit from a business as a sole proprietor gets added to the total income. If the income is higher that simply means, there will be higher taxes. 
In summary, a sole proprietorship is easy to form, has a nominal cost, and is fully controlled by the owner with moderate tax benefits. However, it may increase personal liability, not a great option for continuity and transferring the business to the next generation.                                                            
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.