Introduction
A sole proprietorship is widely regarded as the most straightforward business to start. It involves lesser formalities than corporate establishments because the business owner and the company are considered an entity. Thus, running a sole proprietorship means you are responsible for all business decisions, including risks.
As simple as it can seem, things can quickly become complicated as self-employment progresses through the stages of business registration, taxation, and so on. Whether you want to set up a small business or are ready to start freelancing in 2021, you must understand how business registration functions and when you can register yours to ensure your company’s smooth operation.
What should you know about Business registration?
Businesses operating under a sole proprietorship may or may not require registration- based on various factors. Generally, if you run a sole-proprietorship under your legal name, you do not need to register your business name. Otherwise, you must file your name as your legal corporate name or as a trading name. You would also want to consider filing a trademark.
Furthermore, since trade names registration is a provincial/territorial duty, business owners must register in the provinces and territories where they plan to operate. Given this condition, registration differs across regions. For instance, sole proprietorships in Newfoundland and Labrador are not required to register trading names. On its official website, the CRA published a comprehensive list of business registration requirements in each province; take a look.
There is no legal requirement for trade names or partnership names to be exclusive because registering the brand name does not grant you ownership of the name. In reality, many other companies may be operating under the same trade name.
When do you require Business Registration?
As stated earlier, business registration is required if your small business is not operated under your legal name. Similarly, If you offer taxable supplies in Canada, you must also register your business for the goods and services tax/harmonized sales tax (GST/HST). The same goes for reporting personal income tax. However, if you have not made more than $30,000 annually, you are considered a small supplier. As such, you can carry on with your business activities without registration.
A business number is automatically assigned if you register your business in British Columbia, Manitoba, Nova Scotia, Ontario, and Saskatchewan. Otherwise, you should apply for one separately.
You do not need a CRA software account if your sole proprietorship has no staff and is not expected to register for GST/HST. If your circumstances change and you recruit staff or register for GST/HST, you'll need to open two CRA accounts.
Note that some provinces charge HST- a combination of both provincial and federal taxation. If you operate in such a province, it is crucial to understand how to register for/ and charge HST.
As a sole proprietorship or in partnership business types, your company's income is recorded on your T1 personal income tax form. Furthermore, you will have to provide the necessary documents to your accountant for review. Some of the documents you will submit include the previous year's tax return, financial statements, recently added assets, payroll information, and lastly, business use-of-home details (if you work from home). As such, form T2125, titled Statement of Business or Professional Activities, is integrated into the T1 income tax return package which will be used to update your business income.
Advantages of registering a sole proprietorship in Canada
Of course, there are benefits and drawbacks to registering as a sole proprietorship in Canada. A quick google of your name may hold unintended consequences, such as someone with the same or similar name who has done some damaging events that have landed them in litigation. In a case where you share the same business name with one that is under legal scrutiny, the public may assume it’s yours and choose to avoid transacting with you.
Therefore, business registration helps you carve a unique identity by setting you apart from other enterprises. It also allows you to develop credibility with your customers – many customers may have comfort in knowing that you operate a registered business rather than under your personal name.
Another reason to register your sole proprietorship business is to avoid personal liability legal troubles. Provided you use a name trademarked by an enterprise sharing similar terms as yours, the trademarked company has the right to sue you. You must therefore search the desired name on the relevant database before selecting it for your business.