Proprietorship

Careful planning with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

Click HERE for more information on Proprietorships and Taxation.

A proprietorship or sole proprietorship, is a business established but not necessarily registered by an individual who personally assumes all responsibility for its financing, operations, taxes and profits or losses. The simplest form is for individuals who work on a self-employed basis providing goods or services to consumers directly, or under contract to other businesses. The individual pays income tax on the income, net of expenses, earned by a proprietorship; this income is reported on the personal income tax return of the proprietor. The business will end not only when the owner decides to cease operations, but also upon the death of the owner. 

Registering a proprietorship name is advantageous when a particular name has trademark value and the owner wants to protect its use. Registering a name is usually a prerequisite to opening a bank account under the name of the proprietorship (as opposed to the personal name of the owner). 

This is the simplest way to set up a business. A sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor would normally have a right against all of his or her assets, whether business or personal. This is known as unlimited liability. In a proprietorship, often one person performs all the functions required for the successful operation of the business but it can also employ individuals to assist in the business. The proprietor secures the capital, establishes and operates the business, assumes all risks, accepts all profits and losses, and pays all taxes. 

Proprietorships are regulated by the provincial government. Contact the applicable provincial registrar for registration requirements. Third parties often require registration for use of a trading name. Examples include opening a bank account, registering a motor vehicle, opening a day care and bidding on some government contracts.

Advantages:

1. Low start-up costs - just start doing business

2. Less regulation

3. Owner in direct control of decision making

4. Usually little working capital required

5. Tax losses can be used by owner to offset other types of income

6. All business profits go to owner 

Disadvantages:

1. Unlimited liability

2. Lack of continuity in business organization in absence of owner

3. Difficulty in raising capital

4. Less opportunity for income tax planning

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