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Questions and Answers
What is the simplest, fastest, and least expensive way to set up a new business?
What is the simplest, fastest, and least expensive way to set up a new business?
- Corporation
- Limited Liability Company
- Partnership
- Sole proprietorship (correct)
What is the duration for which a registered business name is valid?
What is the duration for which a registered business name is valid?
- 5 years (correct)
- 10 years
- Indefinitely
- 3 years
What is the main advantage of a sole proprietorship?
What is the main advantage of a sole proprietorship?
- Easy and inexpensive way to start and run a business (correct)
- More regulation from government
- Limited liability
- Difficulty in raising capital
What is the main disadvantage of a sole proprietorship?
What is the main disadvantage of a sole proprietorship?
What is the minimum number of people required to form a partnership?
What is the minimum number of people required to form a partnership?
What is the type of partnership where all partners are equal in power and liability?
What is the type of partnership where all partners are equal in power and liability?
What is the duty of partners in a partnership?
What is the duty of partners in a partnership?
What happens to the business if the sole proprietor dies?
What happens to the business if the sole proprietor dies?
Why is it advisable to conduct a NUANS search?
Why is it advisable to conduct a NUANS search?
What is the tax implication for a sole proprietor?
What is the tax implication for a sole proprietor?
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Study Notes
Carrying on a Business in Ontario
- Three ways to carry on a business in Ontario: Sole Proprietorship, Partnership, and Corporation
Sole Proprietorship
- Consists of only one person, the sole proprietor
- Simplest, fastest, and least expensive way to set up a new business
- Typically used by small businesses with few or no employees
- No legal distinction between the sole proprietor and their business
- Name of a Sole Proprietorship can be the sole proprietor's name or a registered business name
- Registered business name is valid for 5 years and can be renewed
- Offence to carry on a business using an unregistered name
Control of a Sole Proprietorship
- Sole Proprietor (SP) has complete control of business
- SP is entitled to 100% of business profits
- Income earned by the business is treated as SP's income
- SP is 100% responsible for debts and liabilities of business
- Judgment is enforceable against SP
Advantages of a Sole Proprietorship
- Easy and inexpensive way to start and run a business
- No legal formalities involved (other than registering business name)
- Little regulation from government
- SP has complete control of business
- SP owns all the profits
- SP files only one income tax return
- May deduct business losses/expenses from personal income
Disadvantages of a Sole Proprietorship
- Unlimited liability: SP is personally liable for all debts and obligations of the business
- May be difficult for SP to raise capital
- Business may be jeopardized if SP is ill
- SP may be taxed at a higher personal tax rate if business is profitable
- SP is not considered an employee (no employee benefits)
- Business ends if SP dies
Partnerships
- Consist of two or more people who carry on business together with a view to making a profit
- Partnership is not a legal entity separate from its owners
- Each partner is responsible (together with other partners) for the debts and obligations of the partnership
- Income earned by partnership is income of partners
- Partners share profits/losses equally (unless there is a partnership agreement that states otherwise)
- Partners have fiduciary duty to the partnership
- Three types of partnerships in Ontario: general, limited, and limited liability
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