Search
  • Danny McMullen

Ontario's Business Structures- which one is right for you? Part 1

Starting a business may seem daunting at first because of the many decisions one has to make. One of the most important initial decisions to make is the type of business structure to adopt. Choosing an ideal business structure depends on your business goals, target market, liability considerations, tax considerations and many other factors. The most common types of business structures in Ontario are: sole-proprietorship, partnerships, limited partnerships, corporations and cooperatives. Each business structure has its own advantages and disadvantages and we would be discussing them all in our Business Structure Series.


1) Sole Proprietorship


A sole proprietorship is the simplest and least expensive type of business structure, which makes it very common. In a sole proprietorship, the sole proprietor and the business are considered as one and the same under the law. While this makes the business easy to run, it also translates into unlimited liability for the business owner. Essentially, what this means is that both personal and business assets can be used to offset debts, and the sole proprietor can be personally sued for damages for damages caused while running the business.


Another peculiarity of this business structure is the independence it gives to the sole proprietor, to operate the business the way she or he deems fit. They are also entitled to all the profits and losses made in the business.


There are some tax implications to consider when setting up a sole proprietorship. The sole proprietor would be taxed personal income tax on any profit and loss made by the business because that individual and the business are regarded as one.


There are several advantages and disadvantages that this business structure offers, some of which are considered below.


Advantages

  • Easy and inexpensive to set up

  • Low start-up capital needed

  • Sole proprietor controls the business and makes decisions alone

  • All profits made go to the owner

  • Filing tax returns is simple

  • The owner can easily start the business in his or her name


Disadvantages

  • Unlimited liability: Since the business and owner are considered as one, any debt incurred can be enforced against the owner's personal assets.

  • It can be difficult to raise capital.

  • No continuity in business: once the owner dies, the business dies.

  • Profits cannot be distributed to the owner through tax beneficial methods, including dividends.

  • Profits made are taxed at the owner's personal income tax rate


Most individuals looking to go into business start off with a sole proprietorship because of its simplicity and flexibility. One can also decide to choose other business structures as the business grows. Stay tuned to this series as we will be discussing the intricacies of other business structures available in Ontario!


For any questions or advice on which business structure is right for you , please don’t hesitate to contact Northview Law at 416-639-7639, or follow this link to book a free consultation.