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How to Establish a Sole Proprietorship in Canada: Step-by-Step Guide

Canada is one of the countries with high ease of doing business, and it has combated several financial crises since around 2008. The OECD has complemented the country for its strong revival and steady business growth. Canada is believed to maintain its strength in the upcoming years.

It is undoubtedly safe to set up a sole proprietorship in Canada, like many capitalist economies. The following article will meticulously explain how to register a sole proprietorship in Canada.

Who can Qualify for a “Sole Proprietorship in Canada”?

Sole proprietorship in Canada is an unincorporated business, with the simplest structure, owned by an individual. 

The owner is solely responsible for making decisions, understanding profit motives, and handling losses. Sole proprietors should pay personal income tax from the net income generated by one’s business.

If you decide to work independently, billing clients or customers in your name is mandatory. If you are determined to operate under a registered business name, sole proprietors should recognize the bills under that domain. The last situation suggests a separate bank account to complete cheque procedures if your business has a name other than yours.

The registration is compulsory for several business structures. However, a sole proprietorship in Canada under the business owner’s name does not require registration like other businesses.

Documents Required for Registering Your Business in Canada

Understanding the rules and regulations to start a sole proprietorship in Canada marks the beginning of your journey as an entrepreneur.

The following documents are necessary for to register a sole proprietorship in Canada:-

  • Certificate of incorporation
  • Articles of Incorporation for a Federal Corporation or a Provincial Territory in Canada/ Also known as Form 3001
  • Registered Office of the Business and Information on first Board of Directors/ Form 3002
  • Memorandum and Articles of Association of the Company
  • Nuans Name Search Report
  • Approval letter by the Canadian Corporation
  • Federal Business Number along with Income Tax Number to complete corporate transactions
  • Registered Office Address for running the business

Additional documents required from foreigners are as follows:-

  • Address Proof
  • Copy of the Passport (Visa)
  • Information on Paid Up Capital to form a business
  • Form filling payment

Other Criteria for Registering a Business in Canada

If you are planning to run a business, you’d need a solid understanding of the steps of sole proprietorship in Canada. 

Register your business with provinces/territories where you plan to start your sole proprietorship‍

Most businesses must register with the provinces/territories where you have decided to arrange their business. However, certain cases do not support the registration, especially when the company has a single owner’s name.

However, authorities of these provinces work differently, as mentioned below:-

  1. Alberta
  2. British Columbia
  3. Manitoba
  4. New Brunswick
  5. Northwest Territories
  6. Nova Scotia
  7. Nunavut
  8. Ontario
  9. Prince Edward Island
  10. Quebec
  11. Saskatchewan
  12. Yukon

Receive a federal business number and sole proprietary in Canada tax:‍

Mandatory notables include getting a federal business number and sole proprietary in Canada tax. You receive them automatically in the following provinces:-

  1. British Columbia
  2. Manitoba
  3. Nova Scotia
  4. Ontario
  5. Saskatchewan

If you are setting up a sole proprietorship in Canada but in multiple provinces, you must contact the government of Canada.

Application for permits and licenses‍

Employers should contact the federal, provincial, and municipal governments to apply for permits and licenses to start a sole proprietorship.

Canada’s non-residents have to function a little differently to set up a sole proprietorship apart from these steps. The following two ways apply to them:

  1. Opening an office branch: If you are a non-Canadian resident, an extra-provincial/ foreign corporation should be opened in each province.
  1. Incorporation of a subsidy: A subsidiary is a corporation whose shares are managed by a foreign company. These corporations are primarily seen in the Canadian business framework. The benefit of a subsidiary, in comparison to a branch office, the benefit of a subsidiary is that it provides the parent company with limited assets.

However, a higher tax rate is subjected to the business that a non-resident of Canada runs. It experiences an increase of 9% if it’s not a Canadian-controlled Corporation.

How to Register a Sole Proprietorship in Canada?

Registering for a sole proprietorship company in Canada can be surmised into eight steps.

Selecting a business structure

Sole proprietorship is easy plus feasible in terms of a business structure. Sole proprietors in Canada can form partnerships too. 

Creating a name for the company

A name is vital because it is how people would remember your business. It can be distinctive and differentiate you in your industry.

Availability of the name

Look out for IP infringement whenever you decide on a name. Searching for the name, either freely or via search houses, can provide you with a lot of clarification.

Registration of business name

Registration of names is essential for your company to operate, and this works as an exception in the province of Newfoundland and Labrador. Also, businesses having personal names do not have to go through such procedures. 

However, there are three reasons why registration of names should be performed.

  • Business name registration is required when a bank account is opened
  • Changing the name or offering compensation for violating will be easier in case the name is similar to another business
  • Establishment of recognition for the business

Registration for permits, licenses, and taxes

To run a business, you must be well-versed with federal, provincial, and municipal laws. The municipal laws mainly demand a license or a business permit, and sole proprietors should also maintain specialty licenses. Legal advice must be sought when you have confusion in such scenarios.

Completing partnership agreements

You need to hire a personal lawyer for such circumstances. Partnership agreements are part and parcel of business operations. Despite positive rapprochements, there can be conflict in the management. Here, the agreement plays a significant role. A formal partnership agreement should contain the parties’ duties and responsibilities, performance decisions, and the termination period.

Opening a bank account

The main requirements for opening a bank account include business name registration and photo identification. Signatures of all authorized officers are compulsory before signing in cheques or accessing the business account. Additional conditions such as an adequate number of cheques, deposit books, and stationary imprints can also be included.

‍Starting the business

Proper registrations can bring about an objective for your business to run and help you flourish in the long run.

What are the Benefits of a Sole Proprietorship in Canada?

The pros of a sole proprietorship in Canada are as follows:-

  • Affordable and straightforward: A sole proprietorship is a flexible choice. Simple and less documentation helps you stay compliant with employment and taxation laws.
  • Operation of freedom and flexibility: You can join other businesses if your sole proprietorship business is small. Business policies are easy to change without the hassles of time and money. Minimal consent is required during such processes, making the company flexible and full of freedom.
  • Easy banking methods: Simplified banking refers to easy payments which benefit a business. Business payments can be made directly through your bank account as a sole proprietor, and cheques are also easily retrievable.
  • Uncomplicated tax reporting: Simple tax reporting services are one of the primary advantages of a sole proprietor. Separate taxes for businesses are also not required for such companies.

Conclusion

Establishing a business is challenging because every country functions with different rules and legislation. However, Canada brings about a set of simple procedures to become a sole proprietor. It also provides a safe space for your business without discrimination or attack. Legal benefits are also offered if you are a non-resident of Canada who’s still planning to initiate a business. 

However, you’d know running a business involves more than dictating tasks. As a sole proprietor in Canada, you’d also need a way to pay employees and offer benefits. Sometimes you may need to manage freelancers as well. 

Multiplier offers a range of employment solutions for all your hiring and expansion needs. The SaaS-based platform can help you process payroll in Canada in one click, and offer ESOPs, and other employment-related activities.

Frequently Asked Questions

Business numbers are compulsory if you plan to become a sole proprietor in Canada. It is required if your business is incorporated. Also, it helps you contact the federal, municipal, and provincial governments. The CRA refers to this process as “program accounts,” which primarily includes GST and payroll.

Your bank account can be used for financial purposes, and no legal requirements suggest creating a separate bank account. However, you will face fewer hassles if a different business bank account is opened.

It is not possible to switch from a sole proprietorship to a corporation because of its difference in legal structures. Several shareholders own a corporation, while a single, independent owner owns a sole proprietorship.

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