by Obiter

Created on: September 26, 2008

A sole proprietorship is simply the pursuit of profit from a business activity by an individual. A sole proprietorship does not normally need to be formally registered in order to exist, nor is it in any way separated in title from the individual who owns it.

Unlike a corporation, which is a separate entity, an individual is said to be a sole proprietor whenever they do not formally join up with someone else to form a partnership or form a separate entity to operate their business venture.

In some jurisdictions, an individual may operate their business without requiring any registrations of name if they are using their own personal name for the business. Therefore, John Doe could operate as "John Doe" in some jurisdictions without needing to register a business name. However, if the business were called "John Doe's Barber Shop", such would require a business name registration, since the business name now has terms in addition to the owner's name. In other words, the business now has a distinct trade name.

Of course, regardless of whether a sole proprietorship must register for a trade name or not, all persons, including business owners, must be aware of their tax obligations. Thus, a business owner of a sole proprietorship must avail themselves as to whether they must also register for sales or commodity taxes for any goods and/or services they are providing. If their goods/services are taxable under such sales and/or commodity tax regimes, then the business owner could face stiff penalties for failing to withhold and remit any applicable taxes to their respective government bodies.

In addition to taxes specific to the business goods and/or services, the business owner will also likely be subject to personal income tax, depending on the jurisdiction of their residency and/or citizenship. Much like any other income earned, the sole proprietor business owner will have to satisfy themselves as to their specific income tax obligations and possibly self-remit taxes owing.

On a final note, many sole proprietorships also employ individuals. Clearly, a sole proprietor cannot employ them self, since two people are needed for an employer-employee relationship. For their employees however, sole proprietors must ensure that the proper payroll income tax withholdings are remitted, Worker's Compensation premiums are paid, and all Employment Insurance and/or Social Security premiums contributions are remitted to the proper government authorities.

Therefore, while a sole proprietorship is usually the most simplest of methods to operate a business, as can be seen from the discussion above, a sole proprietor must also be aware and diligent in meeting all their obligations, especially their tax remittance ones.

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