Business Types Two of Three – Proprietorship
November 12, 2014 - 0
In a previous blog we described the corporation. To recap, there are three ways you can organize a business – a proprietorship, a partnership or a corporation. In this blog we will do our best to explain a proprietorship.
A proprietorship is an unincorporated business that is set up and owned by a single person. This is as opposed to a partnership that has more than one owner. In terms of complexity, it is the simplest form of business to set up and operate. As there is only one owner, the need for detailed partnership or shareholder agreements is avoided. It happens when a person simply starts doing business in his or her own name or under a trade name.
From a legal standpoint, you need to be aware that in a proprietorship, the owner and the company are one and the same. If someone were to sue the company, they would in effect be suing the owner and the owner would also be personally liable for any damages that may result. The owner’s assets could be up for grabs in a settlement. The added layer of protection that incorporating offers is one of the reasons this route is taken. Even so, shareholders and directors may still be held personally liable in select circumstances.
From a tax standpoint, there are different tax rates and filing requirements for a proprietorship as opposed to a corporation. In essence, the net profit or loss of the proprietorship business is added to the personal tax return of the owner. We would be happy to discuss all of this in greater detail to give you a better understanding of the differences and the implications.
When setting up a proprietorship, the owner could call his or her business anything he or she wants as long as the name isn’t one someone else has reserved. To find out if a name is already reserved and to register a trade name the owner would go to a registry office. Since a proprietorship is unincorporated the registered name will not have Limited, Ltd., Incorporated or Inc. at the end of the name.
So, that’s a proprietorship – someone who is doing business in their own name or under a trade name. It’s fairly simple to set up and run. It should only be considered if liability risks are low or acceptable and it has different tax and filing requirements from that of a corporation.
We will be posting a blog on the advantages and disadvantages of proprietorships, corporations and partnerships but if you would like to find out which way of doing business is best for you please give us a call. We would be glad to sit down with you to discuss your plans and determine which method of organizing your business would be optimum for your needs.
For more information contact us.