What business structure is ideal for your business? The majority of businesses are sole proprietorship (a business owned by one person) or general partnership (a business owned by two or more individuals). What are some advantages and disadvantages of setting up this type of structure?
- Simple and least expensive to set up – You can run a business under your own name and if so, you are not required to register the business name with the Ontario Government. If you decide you want to operate under a business name, it must be registered with the Ontario Government and the fee is $60.00. You register online at serviceontario.ca.
- You can also do a name search for $8.00 to see if anyone else in Ontario is operating under the same name as a sole proprietor or general partnership. When you register, you receive a Master Business License and with that license you can open a bank account.
- Easy to dissolve – You can register your business one day and the next you can have it dissolved. The process is very easy. To register, visit https://www.buscoi.serviceontario.ca/cobi/ClientConsent.jsp
- Owner has direct control –When you run a sole proprietorship/partnership, all of the profits go to you, or to you and your partner (based on your partnership agreement) and are included in your own personal income tax. In the eyes of Revenue Canada, there is no separation between you and your business. The separate form that will be included with your personal income tax is T2125 and it is called a Statement of Business or Professional Activities. You can find the form at http://www.cra-arc.gc.ca/E/pbg/tf/t2125/t2125-15e.pdf
- Tax advantages – One of the advantages to operating as a Sole Proprietor or a General Partnership is that if you run a business from your home – and you have created an office that is not your living room or dining room – you can write off certain expenses. Revenue Canada has some wonderful resources to guide you. To learn more, visit http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/menu-eng.html
- Owner assumes all the risk of the business – The risk is higher when you set up this type of structure because you are responsible for everything that happens in the business and can be sued personally. For this type of structure, we recommend purchasing liability insurance.
- Owner is responsible for payment of all business debts – You are responsible for all debt incurred by your business; if it is not paid, creditors can seize your personal assets.
- Possible tax disadvantages – (profits must be added to personal income tax) –When you make substantial profit, you are taxed at a higher rate. We recommend that you speak to an accountant who can tell you when it’s best to incorporate your business.
These are only some of the advantages and disadvantages to operating a business as a sole proprietor/general partnership. We encourage you to make an appointment with one of our business consultants for further information.
One of the goals of the Small Business Enterprise Centre is to empower small and medium-sized businesses and provide the right tools and mindset to achieve success. For more information about resources, services, business events and seminars, contact us by dialing 311, 1-866-442-5866, online at halton.ca/smallbusiness, by email at firstname.lastname@example.org or visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitter and find us on Facebook.