So, you have a good business idea that you are going to launch. Your business plan is ready, the funding is up and your test marketing tells you that it's safe to be a hit. Have you thought about your business structure? Probably not, and this is where most people's eyes will shine over and the sentences suits, ahhh, the legal things ... but wait, that does not have to be that.
A key to becoming a successful entrepreneur is of course informed, and this includes having a basic understanding of the fundamental business concepts that will affect your business, and it should affect the business decisions you make daily.
Different business structures come with their own pros and cons. The purpose of this article is to discuss some of the most important aspects of the sole proprietorship for the readers of the business to get a substantial, basic understanding of the legal consequences of being on business.
This will be a general overview of the sole business and the examples draw on the Nova Scotia (Canada) team. There may be similar terms in accordance with the law in your area, but you should verify with a lawyer in your jurisdiction (state, province or country, etc.).
What is a sole proprietor?
A sole proprietor is a solely owned, incorporated business. It is often the structure chosen by new small business owners for several reasons. These include easy installation through minimum registration requirements, relatively low cost to start working, and get, if any, annual reporting obligations.
If you simply started running a business today, without registering anything at all, you're more than likely a single holder.
No legal person
A sole proprietor is not a separate legal entity. This means that the business can not own any property or hold any assets in its own name. A sole business business is really just an extension of the business owner himself. Any assets or property used in the business are owned by the owner (you) (not owned by anyone else).
Because the business owner and the business are alone, the sole proprietor can not be employed by the business. An employment relationship is a contractual relationship and it is impossible for a person to be in contract with himself. Therefore, money made in the business can not be expensed and expensed as salary against the company's income. In fact, the company's equity will be calculated as, and considered personal income to, the corporate owner of the tax authority (CRA in Canada), commonly referred to as self-employment income.
As such, if a sole proprietor makes a profit, the profits will be taxed at the higher personal income tax rate in addition to any other taxable income that the holder may have. If losses arise, which is often the case during the fiscal year, these losses can be used to offset other taxable income, for example. employment compensation from a day job (we know it's common for entrepreneurs to have a day job while trying to get their business off the ground). This can lead to a lower amount of taxable income paid on your annual tax.
Sole proprietor's responsibility
The exposure to unlimited liability is a disadvantage for not having a separate legal person as sole proprietor. This means that the owners' personal assets may be available to creditors to meet the company's obligations and liabilities. Should the business not make enough money to cover such liability, the owner's personal assets and other assets such as savings account, property or any of the value may be available under such circumstances. A potential way of limiting liability can be through corporate insurance. However, this would only be within the limits and coverage of the policy, all that exceeds it would still be a personal exposure for the sole proprietor.
Registration of company name
If a sole proprietor wants to use a company name other than his own personal name, company name searches must be made and if the desired name is qualified, it must be registered as required in Nova Scotia by the Partnership and Company Name Registration Act.
The reason for this is, among other things, avoiding duplicate business names from being used, which would confuse the public. It also serves to protect against potential later registrants who use or attempt to use your company name in the same jurisdiction where you are registered. There is also the perception that it will serve to protect the public by providing insight in the form of a message to customers about who you are and thereby who they are in business with (ie, who they are buying a product or service from). However, it is remarkable to clarify that only company name registration does not provide the same level of protection as trademark law provides, and it is generally limited to the jurisdiction in which the name was registered.