Dreaming of being your own boss, calling the shots, and reaping the rewards of running your business? You're not alone: More than 2.6 million people in Canada have chosen the path of sole proprietorship — a self-employment journey that's filled with opportunities, challenges, and yes, the sweet taste of independence.

But just like an explorer setting off on a new adventure, you might feel a mix of excitement and uncertainty. That's where a guide to navigating this new terrain can come in handy. From understanding what a sole proprietorship is to tackling the complexities of legal and tax requirements, this article is designed to be a road map to help you along your solopreneur journey.

What is a sole proprietorship?

In the landscape of business structures, a sole proprietorship stands out for its simplicity. It's a business that's owned and operated by one person — someone who's the heart and soul of the business, building its direction and bearing full responsibility for its successes and failures (including managing all the debts and liabilities of the business).

Sole proprietorships are becoming more common among small business owners and freelancers in Canada for a number of reasons:

• Ease of set-up. It's the easiest and quickest business structure to set up, plus it has minimal regulatory requirements compared to other forms of business.
• Control. Sole proprietors have complete control over all aspects of their business.
• Income taxes. Because the Canada Revenue Agency (CRA) doesn't consider a sole proprietorship a taxable entity, they tax business income as the sole proprietor's personal income.
• Lower costs. Starting (and maintaining) a sole proprietorship is usually less expensive than setting up other business structures.

Sole proprietorships vs. other business structures

Starting a business can feel a lot like standing at a crossroads: how do you choose the right business structure for your needs? To make an informed decision, it's crucial to compare the three most common types of business structure: sole proprietorships, partnerships, and corporations.

Sole proprietorship vs. partnership

In a partnership, two or more people join forces to share in the ownership, responsibilities, and rewards of a business. It's a different dynamic from a sole proprietorship, where one person has full control, reaps all the rewards, and shoulders responsibility for all the debt and liabilities.

Despite these differences, partnerships and sole proprietorships do share several similarities. For example, they're both relatively easy to set up, the owners (whether it's the sole proprietor or the partners) are on the hook personally for the business's debts, and each type of business's income is taxed in the hands of the owners on their personal tax returns.

Sole proprietorship vs. corporation

A corporation is a different structure altogether: unlike a sole proprietorship, a corporation is a separate legal entity with its own rights and responsibilities. Ownership is divided into shares, which can be bought or sold, and the owners (known as shareholders) aren't personally liable for the corporation's debts. And when it comes to taxes, corporations file their own tax returns.

Unlike partnerships, corporations don't really share any similarities with sole proprietorships, other than having the same ultimate goal: making a profit.

Understanding the pros and cons of sole proprietorship

Being a solopreneur can feel like a balancing act. On the one hand, you have the freedom to make all the decisions for your business. On the other, you have to deal with all the responsibilities, too.

Here's a closer look at the pros and cons:

The pros of sole proprietorship

As mentioned, things like simplicity, control, and lower costs are some of the key advantages of being a sole proprietor. Other benefits include:

• No separate tax return. You report your business income and expenses on your personal tax return, which can greatly simplify things come tax time.
• Direct reward. As the sole owner of the business, you reap all the profits — your hard work directly benefits you, not other partners or shareholders.
• Privacy. Sole proprietorships don't have the same public disclosure requirements as corporations, giving you more privacy in your business operations.
• Flexibility. You have the flexibility to run the business the way you want, without the need to consult with partners or a board of directors.
• Easy to dissolve. If you decide to close your business, the process is typically simpler and less costly than dissolving other types of business structures.

The cons of sole proprietorship

Being a sole proprietor comes with a lot of benefits, but it's also important to consider the potential challenges.

For example:

• Unlimited liability. Your personal assets — such as your home or savings — could be at risk if your business runs into financial trouble or is sued.
• Limited growth potential. As a one-person show, you might face limitations when it comes to how much your business can grow.
• Financing challenges. Sole proprietors often have more difficulty raising capital or borrowing funds.
• Increased workload. As the sole owner of your business, you'll likely have to wear many hats, which could lead to a heavy workload or burnout.
• Income instability. Your income can fluctuate depending on the success of your business — unlike an employee, you won't have a regular, guaranteed paycheque.

How to start a sole proprietorship in Canada

Ready to launch your sole proprietorship? While the process may vary slightly depending on where in Canada you're located, the basic steps are straightforward. (Still, it's always a good idea to check with your local government agency or consult a lawyer or accountant for additional guidance).

Here's a quick road map to get you from planning to launch:

1. Pick your business name. This is more than just a name — it's your business's identity! You need to make sure it's unique and not already in use by another business in your province or territory. You can check this by conducting a NUANS name search.
2. Register your business name. Once you've chosen a name and checked that it's not been taken by another business, you'll need to register the name with the appropriate provincial or territorial government agency. Remember, the registration process and fees might vary depending on your location.
3. Register for permits and licenses. Depending on what your business does, you may need to obtain permits and licenses from federal, provincial, or municipal government agencies.
4. Register for taxes. If you plan to hire employees or need to charge clients goods and services tax/harmonized sales tax (GST/HST) or provincial sales tax (PST), you'll need to register for these tax accounts.

Once you've completed these steps, you're ready to open a separate bank account for your business — and start your solopreneur journey!

The sole proprietor's playbook: Tips for success

Success as a sole proprietor doesn't happen by chance — it's the result of careful planning and strategic decision-making. To help you chart your journey through the solopreneur waters, here are some strategies for success:

• Separate your finances. Keep your personal and business finances separate — this makes it easier to manage your money and keep track of business expenses.
• Keep clear financial records. Good record-keeping is essential for any business: it helps you monitor your progress, prepare your financial statements, and complete your tax returns. And tools like QuickBooks helps make record-keeping easier!
• Understand your tax obligations. You're responsible for paying your own taxes, so you need to know what your tax obligations are and plan according to deadlines.
• Network and build relationships. Don't underestimate the power of networking: a strong professional network can be a great way to open doors to new opportunities.
• Maintain work-life balance. Running your own business can be demanding, so remember to take care of your health and make time for relaxation.
• Plan for growth. Have a clear vision for your business and set realistic goals. Be sure to regularly review and update these goals, and make adjustments as necessary.
• Seek professional advice. Don't hesitate to seek advice from professionals, such as lawyers or accountants. They have the expertise to help you avoid potential pitfalls.

Taking the plunge into the world of sole proprietorship can be a bold and exciting move — and one that deserves the best support you can get. QuickBooks is built to provide quality support for the financial management of your business, every step of the way. And with a range of plans to meet every business's needs, starting with QuickBooks has never been simpler.