Corporate and Business Law in Manitoba | Making Law Accessible
Making Law Accessible - Corporate and Business Law
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Easy Explanations
Sole Proprietor

Sole proprietorship is the least complicated business structure. As sole proprietor, you are the business. You can operate under your own name, or you can register a business name at the Companies Office for a fee.

Officers

Officers hold the roles of President, Vice-President, Secretary, and Treasurer. They make the legal decisions on behalf of the corporation. They can also be personally liable under certain tax, employment, and environmental laws.

Starting your own business

When launching your own business, you will need to choose the legal form of your operation. You can structure your business in several different ways. Two popular types of business models are the sole proprietorship and the corporation, each suited to different types of businesses and phases of development.

Other less common business models include partnerships and limited partnerships, however, you should meet with your accountant or lawyer to determine whether these less popular models are suitable for you.

Sole proprietor

Sole proprietorship is the least complicated business structure. As sole proprietor, you are the business. You can operate under your own name, or you can register a business name at the Companies Office for a fee. For example, I could use “P.J. Richer Plumbing” without registering because P.J. Richer is my own name. If I wanted to operate as “Swoosh Plumbing”, I would have to register the name.

If you decide to register a business name, you will be required to renew the registration every three years. Regardless of whether your name is registered, you will also be required to register with the Canada Revenue Agency (CRA) for a GST (Goods and Services Tax) number and with Manitoba Finance for a PST (Provincial Sales Tax) number. We strongly recommend that you also consult with an accounting professional at this stage.

What are the advantages of being a sole proprietor?

The most significant advantage to operating as a sole proprietor is that you can keep your costs low.

If you plan to operate on a shoe-string budget during your start-up phase, sole proprietorship will likely be your preferred method. Sole proprietorship is also appropriate if your income will be limited.

For example, your business exists simply to supplement your main employment income. When your business generates enough income to bring you into the highest tax bracket, you should consider incorporation. Talk to your accountant!

What are the disadvantages of being a sole proprietor?

The largest disadvantage of sole proprietorship is that you and your business are the same entity. No legal distinction exists. This means that all of your assets including your car, home, and cottage are available to satisfy any judgements in the event you are successfully sued.

While lawsuits do not occur often, when they do, your legal costs, resulting damages, and the time away from your business can have devastating effects on your financial reserves.

Why should I incorporate?

Once your business starts earning income, or if liability is an issue, you may wish to incorporate. Incorporation serves two major purposes:

  • Incorporating your company creates a new legal entity separate from you, the individual. If the entity, or corporation, is found liable, you, as shareholder are not. This will protect your personal assets, such as your home, vehicle, and RRSPs.
  • From a tax perspective, you can keep the money earned by the corporation within the corporation. Currently, in the Province of Manitoba, earnings under $425,000.00 attributed to a Canadian-controlled private corporation are taxed at 11%. This amount increases on January 1st, 2016 to $450,000.

This is a legitimate way to defer taxes.

24 Months$99

  • Complete Minute Book
  • Voting & Non-voting Shares
  • One Annual Return
  • One Annual Resolution

12 Months$149

  • Complete Minute Book
  • Voting and Non-voting Shares

The biggest disadvantage of incorporation is cost. While tax deferral is appealing, you should consult with an accountant to ensure you are fully aware of the consequences of the decisions you make. While you will be deferring taxes, you will also be incurring annual legal and accounting costs. If your income is low, any tax advantages will be lost.

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