What is a Sole Proprietorship & How to Register

Published On: Mar 26, 2020 | Read time: 4 min | Updated On: Sep 6, 2022 |

We all have something we’re good at. Maybe you are doing some freelance work as a side hustle, or you may have a hobby you want to turn into a business. That’s terrific! But when you look into formalizing your business, you start hearing words like a sole proprietorship, partnership, independent contractor and corporation. You start to get confused. What’s right for you?

A sole proprietorship is the most common way to start a business.  Let’s start with this and explain everything you need to know about sole proprietorships. We also have another article that can help you choose the right business structure.

What is a sole proprietorship?

A sole proprietorship is a business made up of one business owner (you) that has not been registered with the government as a corporation. For tax purposes, a sole proprietorship is the most basic way to run a business in Canada.

What are the main advantages of a sole proprietorship?

  1. All is yours: Since the business only involves one person, you can make all the decisions, receive all the profits and register your business at a much lower cost than incorporating.
  2. Simplicity: Best of all, registering your business as a sole proprietorship is simple and easy to do.
  3. Tax deduction: From a tax point of view, business expenses can be deducted from your personal income as well. 

What are the disadvantages of a sole proprietorship?

  1. Liability: Since you are your business, not a separate entity, your personal, business, legal and financial situation is intertwined. You’re liable for your business legally and financially.  So, anything that affects your business, will affect you personally (I.e. any debts or losses your business endures will directly impact your own savings and finances.)
  2. Tax rate: You are taxed at a personal income tax rate, based on the total net income you receive (including the income from your business and other sources such as potential employment or investment income), which can really rack up.
  3. Limited growth: If you plan to grow your business, a sole proprietor