If a dentist provides services to patients, but not as an employee of someone else, they are running their own business. Typically, dentists see themselves as professionals first and business people second. But the reality is that they are also running a business. If they are not able to earn enough profit to sustain themselves, then the business will fail; in this situation, the dentist will either have to become an employee of someone else, go bankrupt, or try their hat at something new.
In Ontario, businesses can take on generally three legal structures: Sole Proprietor, Partnership, and Professional Corporation. So what exactly are these business structures? How do you go about creating, maintaining, and ending them? What are the advantages and disadvantages when it comes to liability, decision-making, tax, and other issues? These and other questions are common but not always answered. Sometimes, a lack or absence of communication can result in costly mistakes and even litigation.
Sole Proprietor
If you are the sole owner and operator of your business, you are a sole proprietor. This unincorporated structure involves just one person managing the practice with no legal separation between the person and the business. The sole proprietor has complete control over the work, the finances, the marketing, and engaging others.
Advantages
The advantages of running a sole proprietorship include:
- Making all decisions
- Reaping all profits
- Working how and when you want to
- Having more client contact
- Being flexible
- Personal satisfaction of achieving success through your knowledge, skills and experiences
Disadvantages
The disadvantages of running a sole proprietorship include:
- Being all alone;
- Lacking specialization;
- Succumbing to financial problems;
- Not being able to handle large or complex matters;
- Having responsibility for all administrative details; and
- No expense sharing or income-balancing with partners.
Ease of Creation
By far, creating a sole proprietorship is more straightforward than starting any other type of business organization. Ontario’s Business Names Act provides that “[n]o individual shall carry on business or identify his or her business to the public under a name other than their name unless the name is registered by that individual”. Registering a sole proprietorship’s name can be done by completing and submitting an online application for a Master Business License to Companies and Personal Property Security Branch, Ministry of Government Services. The cost is $60, and you must renew your Master Business License every five years ($60 expense). You’ll also need to get approval from the Royal College of Dental Surgeons about the name of your dental practice.
Continuity
If a sole proprietorship’s owner stops working (e.g. retires, dies, bankrupt, etc.), the business will cease to exist. In other words, a sole proprietorship has no continuity above and beyond the owner.
Liability
The owner is exposed to unlimited personal liability for the sole proprietorship’s debts and obligations. That being said, a sole proprietor will not incur liability due to anyone else’s actions or omissions (which may be the case with a partnership).
Taxation
Income earned by a sole proprietorship flows to the owner and is fully taxed at the owner’s personal income tax rate. Despite this downside, the owner will be able to offset losses and business expenses from the sole proprietorship or any other source of income (e.g. businesses or property) against their personal income. The fiscal year-end for the sole proprietorship will be the same as for the individual owner – namely, December 31st of each year.
