A sole proprietorship is a business structure in which you are the sole owner. You have the freedom to make all the decisions. No one is going to share your profits. At the same time, you are responsible for all the liabilities and debts. The following are some examples of a sole proprietorship:
- Fitness instructor
- Consultant
- Direct sellers
- Tutors
- Landscapers
- Freelancers
- Artists or graphic designers
- Tax preparers or bookkeepers
- Local restaurant owners
- Local shop owners, or
- Home based business owner
Though you have full control of the business, still you need legal help to understand laws and regulations related to this business structure. There will be penalties if you violate any law or regulation. This is the reason why you should speak to a business lawyer in Victoria BC before starting a sole proprietorship.
Characteristics of a Sole Proprietorship
A sole proprietorship has only one business owner who owns all the business assets and controls the business. If anything goes wrong, you will be held legally responsible. It can be a bad debt or an unlawful action by an employee. A creditor can recoup overdue payments by using both your business and personal assets.
Your business continues to exist as long as you desire. Your business becomes a part of your estate after you pass away. You can sell company assets to transform your business. As you are the only owner of the business, all business profits, losses, debts and taxes are tied to you. The way a sole proprietorship is taxed is different from other business structures. You will have to pay personal income tax on your profits. In case of a loss due to business, you must report it. A local business lawyer in Victoria BC can provide a better idea of taxes.
Pros and Cons
The following are the advantages of starting a sole proprietorship:
- It is easy to establish a sole proprietorship
- It is cheaper to start.
There is less paperwork required in starting a business of this kind. The procedure is also simple with fewer steps. As a result, you have to spend less money as compared to a partnership or a corporation. You don’t have to file separate tax forms for your personal and business income. As a result, compliance becomes easier. Taxes are charged on individual income tax rates. There are no partners or board members to control the business.
You can also take advantage of certain tax advantages as you create new job opportunities. You can hire anyone you want. Your spouse can help you with business and you don’t have to declare your spouse as an employee.
Be aware of the risks before starting this type of business. You will be held responsible even if it is your employee’s mistake. The second risk is that your business finances affect your personal finances. Creditors can get their money by using your bank account, home and other non-exempt assets.
Another big challenge in a sole proprietorship is the struggle in raising funds. People starting sole proprietorships usually don’t have a lot of capital.
Consult a Business Lawyer in Victoria BC
You don’t know much about laws related to this type of business, taxes, and your legal rights and responsibilities as a business owner. Therefore, you should find a local business lawyer in Victoria BC who can explain all the laws and also help you with paperwork and taxes.
