Legal Structure for Your Small Business-Option 1
In terms of tax laws, there are four legal entities for businesses in Canada: sole proprietorship, partnership, corporation, and less commonly trust. We discuss the choice of legal forms here for business starters.
Sole Proprietorship
A sole proprietorship is one individual operating a business, without forming a corporation or other forms. The income of the business is then taxed in the hands of the owner (the sole proprietor), at personal income tax rates. The income is considered income from self-employment, and is included on the personal income tax return of the owner.
Some Merits of sole proprietorship:
1 Setting up a business in the form of a sole proprietorship is relatively simple and the costs are low. You may don’t need to do any registrations under certain conditions.
2 If the business loses money, the losses can be written off against other income of the sole proprietor.
3 Sole proprietorships are less regulated than corporations. The administration of a sole proprietorship is less costly than that of a corporation. However, sole proprietorships are regulated by the provincial/territorial governments, and the proprietorship may have to be registered.
4 The sole proprietor is the only boss, and pockets all profits of the business.
Some Demerits of a sole proprietorship:
1 The big issue of a sole proprietorship is unlimited liability. The sole proprietor is liable for all debts and other liabilities of the business. If the business, even carried under a separate business name is sued, all the business and personal assets of the sole owner are at risk.
2 If the business is profitable, it will usually be paying higher taxes than if it were otherwise incorporated as a Canadian Controlled Private Corporation
3 A sole proprietorship also has a lack of continuity if carried under an individual’s full name.
In terms of tax laws, there are four legal entities for businesses in Canada: sole proprietorship, partnership, corporation, and less commonly trust. We discuss the choice of legal forms here for business starters.
Sole Proprietorship
A sole proprietorship is one individual operating a business, without forming a corporation or other forms. The income of the business is then taxed in the hands of the owner (the sole proprietor), at personal income tax rates. The income is considered income from self-employment, and is included on the personal income tax return of the owner.
Some Merits of sole proprietorship:
1 Setting up a business in the form of a sole proprietorship is relatively simple and the costs are low. You may don’t need to do any registrations under certain conditions.
2 If the business loses money, the losses can be written off against other income of the sole proprietor.
3 Sole proprietorships are less regulated than corporations. The administration of a sole proprietorship is less costly than that of a corporation. However, sole proprietorships are regulated by the provincial/territorial governments, and the proprietorship may have to be registered.
4 The sole proprietor is the only boss, and pockets all profits of the business.
Some Demerits of a sole proprietorship:
1 The big issue of a sole proprietorship is unlimited liability. The sole proprietor is liable for all debts and other liabilities of the business. If the business, even carried under a separate business name is sued, all the business and personal assets of the sole owner are at risk.
2 If the business is profitable, it will usually be paying higher taxes than if it were otherwise incorporated as a Canadian Controlled Private Corporation
3 A sole proprietorship also has a lack of continuity if carried under an individual’s full name.