What is a Sole Proprietor?

A sole proprietorship is one person operating a business, without forming a corporation.  The income of the business is then taxed in the hands of the owner (the proprietor), at personal income tax rates.  The income is considered income from self-employment, and is included on the personal income tax return of the owner.

Advantages:

Setting up a business in the form of a proprietorship is relatively simple and the costs are low.

If the business loses money, the losses can be written off against other income of the proprietor.

Proprietorships are less regulated than corporations.  The administration of a proprietorship is less costly than that of a corporation.  However, proprietorships are regulated by the provincial/territorial governments, and the proprietorship may have to be registered.

The proprietor is in control of all decision making, and receives all profits of the business.

Disadvantages:

The biggest disadvantage of a proprietorship is unlimited liability.  The proprietor is liable for all debts and other liabilities of the business.  If the business is sued, all the business and personal assets of the owner are at risk.

A proprietorship has a lack of permanence - if the owner dies, the net business assets pass to the heirs, but valuable leases and contracts may not.

The net profit at years end must be declared appropriately in that persons taxes and in whatever margin of tax for that year based on their personal income.  Unlike a Corporation enjoys a flat tax system.