This is the simplest form of business formation. It is not possible to form a Federal sole proprietorship in Canada but a sole proprietorship may be set up under Ontario or other provincial or territorial law. A sole proprietorship has a single human being as an owner and this is the simplest form of business structure typically available. A sole proprietorship must be registered with the Ontario Government unless you strictly use your own personal name for the business. A business registration may be necessary or advisable for other purposes including a setup of a bank account, the proof of a business entity for various government filing numbers, proof of intention to operate a business for profit and other purposes. No agreement is necessary to define the scope of the business as there is only one owner and one (1) decision maker. The province or territory defines forms and the information required to register a sole proprietorship, including the listing of the business name. Currently, at least the Ontario government does not screen sole proprietorship names for conflict with previous businesses and this should be checked separately through a lawyer or trademark agent to avoid allegations of passing off and infringement.

Income and expenses are typically listed on the individual owner’s personal income tax return and at least a limited form of financial statement is required to report the business revenues and business expenses on the person’s individual tax return. There are also usually no corporate tax deductions or special corporate treatment which a sole proprietorship can typically qualify for.

The trade-off for simplicity is that there is no limited liability and the sole owner of the business is responsible for 100% of the debts and obligations of the business and which may expose all of the owner’s personal non-business assets to seizure including the portion of any home or other real estate in the name of the sole proprietor. Liability and tax ramifications are the two (2) biggest factors in favor of incorporation. Please feel free to call us call us to discuss whether a sole proprietorship may be of some interim tax value and/or how to transition a sole proprietorship to a corporation as tax liability may be triggered by the mere conversion from a sole proprietorship to a corporation.