Want to Run Your Own Business? The Pros and Cons of a Sole Proprietorship (French version available)

Not everyone wants to work for someone else, whether that would be for a big business or a small one.  Instead, many people prefer to work for themselves as entrepreneurs and start their own business.  Maybe they want to bring their own great ideas into the world themselves, or maybe they simply want to be their own boss.  Whatever the reason, for motivated, determined, and creative people, working for themselves can build a more enjoyable career than they would experience elsewhere.

There is more than one way to create your own business in Canada, but a common one for individuals and a good place to start is a type of business called a sole proprietorship.

What is a Sole Proprietorship?

The Business Development Bank of Canada (BDC) defines sole proprietorship as “a business with a single owner who is solely responsible for all liabilities. In the eyes of legal and tax authorities, the business and the operator are one and the same.”

A sole proprietorship business is a less formal business structure compared to other small businesses, such as partnerships or incorporated companies.  Setting yourself up as a sole proprietor has a low barrier to entry, is affordable, and is relatively simple to set up, which makes this type of business an attractive path for new entrepreneurs.  You don’t need to register a sole proprietorship with your province unless you are earning revenues greater than $30,000 per year, or wish to operate under a business name other than your own legal name.  If you do want to name your business something unique, then you need to register your business name with the government.

If you begin earning over $30,000 annually, then you will likely need to register for a business number, and be required to charge and pay sales taxes.  You will also need a business number if you want to hire other employees, or access government programs that assist small businesses.

Almost any business can be a sole proprietorship, but they are commonly used by freelancers of all types, tradespeople such as electricians or carpenters, artists such as photographers or designers, and many other types of work.

Considering whether a sole proprietorship is right for you?  Here are some pros and cons:

Pros

• A sole proprietorship is easy to create, and easy to dissolve, which is useful for new businesses and young entrepreneurs just starting out. Start-up costs for establishing the business are low.
• The owner has complete control of business decisions, direction, etc. This means you can do things exactly the way you want, without having to convince a partner or anyone else.
• Operating your own business means you have the flexibility to work when and where you want, which can be especially useful for a part-time or side-gig to a regular job, or if you have personal and family obligations you need to accommodate.
• A sole proprietor owns all the earnings and profits of the business; effectively, the revenue from the business is your income.
• Accounting and taxes are relatively simple, and easy to manage using basic commercially available software.

Cons

• As a sole proprietor, the business and the owner are considered to be the same entity for taxes and legal purposes. This means you are responsible for all liabilities, legal and financial, when it comes to the business.  This includes debts or other obligations that the business owes to other people—so if your business owes money, you owe money.
• If you are not able to work, the business can’t operate and therefore will not create income. Though you have some flexibility in when you work, this means you might need to work long hours each day, or many days without a proper break, in order to get everything done that needs doing.
• Because in a sole proprietorship the owner and business are the same, you may need to use personal savings and loans to pay for start-up costs and other business expenses until the business is turning enough profit to cover those costs.
• It can be harder to grow the business and find employees, though this will vary depending on the type of work and the location where your business operates.

Do Your Research

As with any other life decision, do your research!  There are lots of resources available from your local business development organizations, municipal or provincial government, and industry groups related to your business’s focus.  Be sure to talk to other sole proprietor businesspeople.  They can help you understand what is involved in creating your own business as a sole proprietor, both for day-to-day concerns as well as the big picture of how to operate and grow your business.

You will have to be prepared to work hard, but the return on investing in yourself and your own business is an amazing career doing something you’re passionate about!

 

Sources:

BDC. “Sole proprietorship.” https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/sole-proprietorship