What is Sole Proprietorship
If you are looking into operating a business as a sole proprietor, you will find that there are advantages and disadvantages to this form of business, which we will discuss in this article. Generally speaking, you can basically take all the advantages of operating a corporation, and say goodbye to them. That said, if you want to get going quickly, and don’t want to incorporate, this is a perfectly viable option.
A Toronto Business Lawyers who specialize in opening this type of business for an individual will seek out name searches that the individual may like to use for the newly opened company. In some cases, you may have to legally trademark the business company name if it differs from the owner’s given name. A Lawyer such as Jonathan Kleiman in Toronto will thoroughly explain this to you al in a free consultation, which you can schedule today with him at the phone number 416-554-1639.
Let us now discuss the advantages and disadvantages of operating a business as a sole proprietor.
Advantage of Sole Proprietorship
There are certain advantages of a sole proprietorship that can significantly benefit you. Of course, giving Jonathan a quick call will give you a much better understanding of these advantages.
Low start-up costs
Unlike a corporate start-up, your registration fees and legal fees are significantly reduced as the paperwork to open this type of license is much less.
Quickly change your business structures
You may find yourself in a position down the road that you need to incorporate your business or even go into a partnership. Your lawyer can easily upgrade your company’s status for you. There may be some issues with regard to taxes and liability, though, if you choose to do so. While moving the assets to a new corporation is doable, it may carry some costs, and moving liabilities, or contractual obligations, away from yourself, may not be so simple, or even possible.
Full control of the company
As a sole owner, you have 100% complete control of the daily operations of your business. You are responsible for making all decisions that affect the growth and future of the company. You are also responsible for all the finances, may it be profits, debts, or taxes. This is also true for a corporation that you alone are the owner of.
Opening a bank account for a sole proprietor business owner is a simple process. You will need documentation of the business name which your lawyer can easily retrieve for you, and of course, you will need to produce proper identification. Most banking institutions offer small business accounts that you can use for your daily business transactions. Banking fees will vary bank to bank, so it is always a wise choice to compare banks to see what banks give you the best rates and most significant advantages with small business accounts.
Opening a bank account for a corporation is not all that much more difficult, but there is a bit more paperwork involved.
Now let us discuss some of the disadvantages of a sole proprietorship.
Disadvantages of Sole Proprietorship
As a sole proprietorship, your business is personally liable for any business actions and debts it incurs. The business does not exist as a separate entity; therefore, all personal property and finances connected to the business. It is essentially you contracting and doing business as yourself
There may come a time that you may like to expand your business using capital given to you by investors. One problem you may face when seeking financial investors is that they may require that your business is a separate entity for better security for their funds, for better growth opportunities, and simply the opportunity to take ownership (other people cannot own any part of your sole proprietorship any more than they can take ownership of you, yourself)
Raising money for a sole proprietorship is all but impossible unless you choose to take on debt. Whereas corporations allow for people to take ownership, and own shares that they can then sell or leave to others, this is not true for a sole proprietorship. This can make it very hard to grow your business.
You cannot leave shares of yourself in your will. In a sole proprietorship, you are your business. If something happens to you, it happens to the business. With a corporation, you could disappear, and another person could take it over seamlessly. This is crucial for the ability to sell the business seamlessly, and to be able to leave it to loved ones, or grow it substantially with external investment.
It is important to note that with a sole proprietorship you are personally liable for everything that the business does. From employees to customers, any lawsuit falls on you personally. With a corporation, that is generally not the case (with some specific caveats).
A sole proprietorship cannot offer ownership opportunities to employees, or investors, or family. A corporation can do this with ease, with the right contracts in place.
Above, we have very briefly discussed a few of the disadvantages of a sole proprietorship. This information is a loose guide to a few of the pros and cons of a sole proprietorship.
A Toronto Business Attorney who specializes in helping individuals open a sole proprietorship for their business of choice, such as Jonathan Kleiman, would be happy to guide you through and explain the process of how things work while looking out for your best interest.
Mr. Kleiman is in Toronto, Ontario, on Bay St with easy access from the Bay St subway. He is available for free consultations as well as weekend appointments.
Contact Jonathan Kleiman today at 416-554-1639
Toronto Business Attorney.