Ontario is a vibrant hub for new businesses, attracting entrepreneurs from diverse backgrounds and cultures. For immigrants, launching their own business can unlock new opportunities and fulfill their dreams in Ontario.
A Sole Proprietorship is a business owned and operated by a single individual, who bears full responsibility for its liabilities and taxes. If the business operates under a different name than the owner's personal name, it must be registered with the Ontario government. However, if the business uses the owner's personal name without additional words, registration is not necessary, as the owner already has the legal right to use their name. For example, using the name Mary Sue is allowed without a registration but if you operate a business called Mary Sue's Baked Goods, then it would have to be registered.
Sole Proprietorships can be either part-time or full-time ventures and you are allowed to hire employees or subcontractors to meet business demands. Under the updated Business Name Act of October 2021, there are three types of business registrations available in Ontario, each offering distinct benefits and legal frameworks. You can see each type of registration with the old and new names listed below:
Old Name | New Name |
Master Business Licence | Business Name Registration |
General Partnership | Firm Name of General Partnership |
Trade Name | Business Name for a Corporation |
A Sole Proprietorship offers access inexpensively to those who wish to start a business and consider both the risk and revenues from the business to be minimal. In cases where business operations will have more liability risk or revenues, incorporating a business may be more suitable.
Pros and Cons
When exploring the various types of business registrations, it's essential to weigh the pros and cons of each to determine the best fit for your needs. Here are some advantages and disadvantages of sole proprietorships:
Advantages:
Owned by a single individual
Registration lasts for 5 years and can be renewed
Business taxation is included in the individual's income tax return filing
Easy to establish
Cost-effective to start
Simple to cancel
Disadvantages:
No Name Protection: Sole proprietorships lack legal protection for business names, making them susceptible to use by others.
Personal Liability: As the sole owner, you are personally liable for any debts or liabilities incurred by the business, potentially risking personal assets.
Tax Implications: Business income is taxed at the individual's personal tax rate, which may lead to higher taxation compared to incorporated businesses.
Limited Flexibility: Sole proprietorships offer limited flexibility for changes, typically only allowing updates to addresses or business activities.
Limited Credit Access: Accessing credit or financing may be challenging for sole proprietors due to perceived risks associated with this business structure.
Small Business Perception: Sole proprietorships are often perceived as small-scale operations by other businesses and suppliers, potentially limiting partnership opportunities.
Registration Restrictions: Sole proprietorship names must adhere to specific regulations to avoid confusion with multiple entities, limiting naming options.
Sole proprietorships require renewal every 5 years to maintain activity, the registration process is straightforward and affordable. However, it's important to note that business income is combined with the owner's personal income on their tax filings. Therefore, if your business anticipates significant revenue, consulting with an accountant or tax professional is advisable to determine the most advantageous registration approach.
Name Protection
A significant drawback of operating as a Sole Proprietorship is the lack of business name protection. Unlike incorporated businesses, Sole Proprietorships do not enjoy legal safeguards for their business names. Consequently, other individuals or entities are permitted to use the same or similar names for their businesses without restriction. This lack of name protection may pose challenges for Sole Proprietorships seeking to establish a distinct brand identity or safeguard their reputation in the market. As a potential solution, entrepreneurs can opt to incorporate or trademark their business name, thereby strengthening their legal standing and enhancing their competitive advantage within their operating jurisdiction.
Personal Liability
When considering operating a Sole Proprietorship, personal liability emerges as a critical consideration. Unlike incorporated businesses, Sole Proprietorships lack a legal separation between the business owner and their personal assets. This means that the individual proprietor assumes unlimited liability for any risks associated with the business, potentially endangering personal assets such as homes and vehicles. Incorporating a business, on the other hand, offers limited liability protection, safeguarding the personal assets of business owners in the event of legal action against the business. If opting for a Sole Proprietorship aligns with your circumstances, it's advisable to explore insurance options to provide additional protection for your personal assets as part of your business strategy.
Taxes
For a Sole Proprietorship, the business owner is responsible for reporting the business's revenue or profits on their personal income tax forms, which are then submitted to the Canada Revenue Agency. Business taxes are treated as part of the individual's income tax and are due quarterly throughout the year. To avoid underestimating personal tax obligations, it's advisable to set aside approximately 30% of revenues for tax purposes.
Additionally, sales tax becomes applicable to the Sole Proprietorship once the business's revenue reaches $30,000. Before reaching this threshold, it is not mandatory to establish a tax account with the Canada Revenue Agency.
Sole Proprietorship Ownership
Once registered, a Sole Proprietorship is solely owned by the individual business owner, with no option for changing ownership. Once you've registered your business, it remains under your ownership until you choose to cancel it or it expires automatically after 5 years if not renewed. While you can update details like the business activity or address, the ownership remains unchanged.
Name Restrictions
A Sole Proprietorship is restricted from using certain words that imply the business is larger than a single owner. Prohibited terms include "group," "associates," "consultants," and any language suggesting multiple owners. Additionally, names containing two or more individual names, like "Tim & Rob’s Bakery," would be rejected.
Furthermore, legal endings such as "limited," "Ltd.," "Incorporation," "Inc.," "Corporation," or "Corp." are not permitted for Sole Proprietorships, as they are exclusive to incorporated businesses.
If you would like to register a Sole Proprietorship, we can help you with the filing. Just fill out our simple form and we will register it on your behalf with the Ontario Business Registry within 1-3 business days.
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