Setting up a Sole Proprietorship

Setting up a Sole Proprietorship


Sole proprietorships are usually the simplest, easiest, and most affordable business structure for a small business or new venture; however, there are still a number of things that need to happen to set up a well organized sole proprietorship. Dealing with these issues up front is a valuable investment because it can avoid serious headaches as your business grows. It is a lot easier to deal with the organization of your business at the start, before you become busy marketing and dealing with customers or clients. The following are some general concerns with sole proprietorships. Depending on the type of business there may be other important steps necessary to establish a sole proprietorship. Getting these simple first steps out of the way can give you more time to focus on your business later.


1) Sole Proprietorship Name registration


A business name can be a valuable asset. As a sole proprietor, you can carry on business under your own name without having to register or take any formal steps. An example of this would be “Joe Blogg’s Lawn Maintenance”. The name is sufficient to identify your business and distinguish it from other businesses, while making it clear to the public who they are dealing with. The British Columbia Partnership Act creates a legal requirement to register your name if you are doing business under a name other than your own and your business involves “trading, manufacturing, or mining”.

Even if you carry on a type of business that does not require name registration, it is still a good idea to register your business name if you are not using your own name. Registering your business name will not totally prevent other businesses from using the same name, but it will provide some measure of protection by publicly establishing when you started your business using that name.


2) Sole Proprietorship Insurance


The simplicity of a sole proprietorship is that the individual carries on business as themselves with no intervening legal entity. This makes things affordable and creates a fairly efficient tax structure, but it also comes at a significant cost – the sole proprietor is personally liable for all their business debts and for any liability arising from the activities of the business. Depending on the type of business, insurance can be vital. Because the sole proprietor is personally liable, any accidents or injuries that occur due to the business’ negligence will probably result in a claim against the sole proprietor. Damages for a personal injury or destruction of property can be very high, and a claim against the business could put your major assets, like your home, at risk.


3) Sole Proprietorship Accounting 


There is a common misconception that having a business allows the business owner to write off all sorts of “business” expenses like meals or a personal vehicle that is mainly used for pleasure. While there are appealing tax deductions that can be achieved through owning your own business, the real rationale behind a tax deduction is to allow businesses to incur legitimate expenses while pursuing a profit. Writing off borderline personal expenses can be a violation of the Income Tax Act. As a sole proprietor it is important to keep detailed and accurate records of your business expenses so that you can claim all of your legitimate expenses at the end of the year, and avoid getting into trouble for inadvertently claiming expenses that were not legitimately connected to your business. Setting up a good accounting system from the beginning, and saving your receipts, can save you trouble later on, and make it easier for your accountant to file your taxes.


4) Sole Proprietor Business Contracts


Even as a sole proprietor you will still need strong and enforceable contracts with your customers or clients. These types of agreements will vary greatly depending on the type of business that you operate. Joe Blogg’s Lawn Maintenance might need a simple regular service contract that governs the ongoing relationship with a client, whereas a business consultant might need a one-time agreement that is very detailed.

Well drafted contracts are clear and lay out the rights and responsibilities of each party so that everyone knows what they can expect. Having clear contracts can actually make it easier to collect your receivables and reduce your delinquent accounts by avoiding misconceptions with your clients. Above all, well drafted contracts are legally binding and provide you with a remedy should a dispute develop and you find it necessary to go to court and collect upon your account.

If you are intending to have employees in your business, then it is very important to have employment contracts. Many small businesses do not have employment contracts and may also be unaware of the obligations placed on employers under the British Columbia Employment Standards Act. With employees it is especially important to clarify the terms of the relationship at the outset, and having a clear and fair employment contract can help foster a productive and respectful relationship with no unpleasant surprises for either party.




In conclusion, setting up a sole proprietorship is relatively simple, and depending upon your industry it can be the perfect structure for your small business or start-up company. As your business grows you can then think about incorporating when the time is right. In the meantime, making sure that your sole proprietorship is properly registered and well organized can save you time and money and give you more time to focus on running your business. We love helping small businesses, so if you need a name registration, business contracts, or if your small business is growing and you are considering incorporating, give us a call.


A Cautionary Note

This article provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

About the Author

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Written by Cadeyrn Christie

Cadeyrn Christie is a Partner with Velletta Pedersen Christie primarily practicing civil litigation and business law. A former tradesperson, business owner, and high-performance athlete, Cadeyrn focuses his practice on providing dynamic representation to individuals and businesses. Cadeyrn Christie has helped clients achieve cost-effective legal solutions in a wide variety of contentious matters, including business disputes, debt collections, personal injury litigation, real estate disputes, and construction litigation. Cadeyrn has represented clients at all levels of court in British Columbia, including the British Columbia Court of Appeal.