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Forms of Business Organization in Ontario, Canada

by: Peter Cusimano, B.Sc., LL.B.; Toronto Business Lawyer

Sole Proprietorship

A sole proprietorship exists whenever an individual carries on business for the individual's own benefit without involving the participation of other individuals, except as employees, and without using one of the other forms of business. The individual is the sole owner (hence, the name sole proprietorship). The sole proprietorship is the simplest form of carrying on business.

(i) Advantages of the Sole Proprietorship:

1. The sole proprietorship involves minimal legal formalities and registration requirements to begin and maintain.
2. The sole proprietor has total decision-making authority.
3. The sole proprietor enjoys all the benefits (income) of the business.
4. All of the assets (equipment, inventory, property, etc.) of the business are owned by the sole proprietor (unless they are purchased by way of a loan).

(ii) Disadvantages of the Sole Proprietorship:

1. The sole proprietor is personally responsible for all liabilities (losses, debts, expenses) of the business. Therefore, the sole proprietor is personally responsible for all contracts and financial responsibilities of the business and for all actions of the business's employees.
2. If there are any lawsuits against the business the sole proprietor will be personally liable for any judgment against the business. As such, the sole proprietor's personal assets such as his/her automobile, house, bank accounts are at risk of being seized by anyone obtaining judgment against the business.
3. Income or loss from the business must be included with the sole proprietor's other sources of income during the year. As a result, the sole proprietor may be subject to paying more income tax than if another method of carrying on business is used. However, in some cases, the ability to apply losses to the personal income of the sole proprietor may be an advantage to the sole proprietor especially if there are other sources of income.

(iii) Licences

Some business may require a licence in order to carry on business. For example, licences may be required by electricians, plumbers, restaurants, taxi cabs, convenience stores, driving schools, employment and personnel agencies, motor vehicle dealers, real estate brokers, securities dealers, and various other activities.

(iv) Business Name Registration

If a sole proprietor wishes to carry on business using a name other than his/her own, then the business name must be registered with the Ministry of Consumer and Commercial Relations. Registration must be made when the name is first used and registration is for a period of five years and may be renewed. Failure to register a business name is against the law and may result in a summary conviction. In addition, anyone who has failed to register cannot maintain a proceeding (ie: defend or commence a lawsuit) in any court in Ontario in respect of that business without leave (ie: permission) of the court.

You can register any name you choose, subject to a "passing off" lawsuit preventing you from using the name because it is too similar (in spelling or pronunciation) to someone else's name or trademark.

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Previous: Forms of Business Organization in Ontario, Canada

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