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What is a Sole Proprietorship?

A sole proprietorship is a business where the full investment is done by one individual and to whom the business belongs to in its entirely. A sole proprietorship is the oldest form of business and can have any name but should not have the letters Ltd. or Inc. attached to its name as they stand for a limited company or an incorporated company. The greatest advantage in this sort of enterprise is in setting it up. Just choose a name, print stationery and you are ready to go. Mostly it is not even necessary to register the business with any agency, unless for some copyright requirements. In most Canadian provinces it is the same, no registration required. One of the biggest disadvantages is that when you have a sole proprietorship, you are liable personally to the full extent of your assets.

As the sole owner of a business you are not required to register it in most provinces in Canada. And even if registration is required, it is a relatively simple and hassle free process. Also another great benefit is the ease with which you can file taxes in your personal income tax form itself. This is not admissible for any other form of business. One other great advantage to sole proprietorship is the freedom to operate your business any way you want without looking to anyone else for their consent. You can take your business in ay direction you want and to try to fulfill your vision for your business. This freedom is invaluable when you have to consult others and consider their opinions when doing business in cases of partnerships or companies. Of course this sort of freedom comes at a price. As you enjoy all the fruits of your labor and personal freedom in decision making, so are you alone when it comes to fulfilling your obligations arising out of the business.

As easy as life is when you and your business are treated as one and the same by the law, there can be serious consequences if things go wrong. As the name indicates you are solely responsible in a sole proprietorship for all business liabilities.

As you are personally responsible for any losses and dues arising out of the business and creditors can move the court for attaching your assets as in the eyes of the law, you and the business are one and the same. So it is not surprising that many sole proprietorship business people end up bankrupt, as they are personally liable to the full extent of their personal income and assets. This is why many entrepreneurs end up bankrupt in sole proprietorship. Also another major drawback to this form of business is that raising capital can be very difficult as you and your business are treated as one entity. And there is not flexibility when it comes to filing taxes. Just as easy as it is to file taxes as an individual, the tax benefits available to an organization are not available to you as an individual. If one has the capital and necessary know-how, there is no reason why one cannot make a success of their sole proprietorship.

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