Sole Proprietorships

Sole Proprietorships

A sole proprietor is the simplest form of business ownership. In it, a single individual person operates a business. They can buy and sell goods, provide services, own rental properties, or make investments. It can be a good form of business when starting a small home business, but as your business grows, there may come a point when you need to consider other forms of business structure.

An example John wants to start a snow removal business. John goes to the local hardware store and buys a shovel. His neighbors agree to hire him to clear their sidewalks and driveways the morning after it snows. When he does this, they pay him the agreed amount in cash or by cheque. John is in business as a sole proprietor.

Advantages and disadvantages of being a sole proprietor

A sole proprietorship has several advantages:

  • Easy and low cost to set up
  • Only one owner
  • Little paperwork throughout the life of the business
  • Easy to dissolve
  • Can operate through a tradename
  • Can register for a GST number
However, there are also several drawbacks with this form of business ownership:
  • There is no legal distinction between you and your business
  • Hard to transfer to a purchaser
  • Length of business is tied to your lifespan
  • The owner faces unlimited liability for the legal claims brought against the business
  • Business income is taxed as your personal income
Are you out growing your sole proprietorship?
  • Are you making more in profit than you need to cover your family’s expenses each year?
  • Does your business operate in a high-risk industry, where an accident could result in a costly judgement against you?
  • Do you want to hire employees?
  • Has the time come to sell your business to someone else?
  • Are you joining forces with someone else to expand your company?

Other Resources

Service Alberta – Registering a Trade Name