Aboriginal Business – Sole Proprietorship (Aboriginal Considerations)
With Aboriginal entrepreneurship on the rise, it is increasingly necessary to have a basic understanding of the legal issues that entrepreneurs, their businesses, and business partners face, in particular when issues unique to Indian status in Canada are thrown into the mix.
There are various ways an entrepreneur can structure a business. One of the simplest structures is known as a “sole proprietorship”. This post will discuss sole proprietorship and a few of its features including some unique to the Aboriginal (Status Indian) entrepreneur / Aboriginals business context.
A sole proprietorship is a business that is operated by one person (hence ‘sole’), without partners.
This business structure is a quick and easy way to start operating a business because it comes with very few registration requirements and lower costs compared to some other possible structures.
One consideration is whether or not you will have to register a business name. In Nova Scotia, a business name must be registered if the entrepreneur intends to call his or her business something other than only his or her first and last name. In other words, if your name is John Smith, and you call your business “John Smith”, you don’t have to register a business name. However, if you intend to add to your name, such as “John Smith Consulting”, or “John Smith Technology”, or use a different business name altogether, such as “Super Awesome Consulting Services”, then a business name must be registered.
Another important aspect of proprietorship that entrepreneurs should be aware of is that there is no legal separation between the business and the owner. This means that if you are a sole proprietor and your business gets sued for something, you are being sued personally, and therefore your personal assets, such as your home, any vehicles you own, your bank accounts, etc., may be at risk if you become liable (note – when you have an incorporated business, the corporation is legally separate from you. This will be discussed in more detail in an upcoming article on corporations & corporate entities).
Tax considerations can often be a significant factor in whether an entrepreneur will choose to incorporate a business or operate as a sole proprietor. For this reason, the advice of a lawyer with expertise in tax can be very important, in particular when issues related to status Indians in Canada may be relevant.
Aboriginal (Status Indian) entrepreneurs in Canada must also consider particular issued related to being a Status Indian (under the Indian Act (Canada)), when choosing how to structure a business.
First, s. 89 of the Indian Act, provides that any property that is owned by an Indian (as defined in the Indian Act), that is located on a reserve, generally cannot seized by non-Indians. Therefore, if a non-Indian sues an Indian sole proprietor and wins, and the sole proprietor’s assets are located on a reserve, those assets will not be subject to seizure.
However, the Indian Act doesn’t prevent another Indian from legally seizing the on-reserve assets of Indian. However, the liability must have been that of a Status Indian in the first place, as Canadian Courts have established that a liability cannot be assigned by a non-Indian to an Indian in order to side-step the s. 89 protection of in-reserve assets.
Another reason Aboriginal entrepreneurs who operate a business on-reserve may find the sole proprietorship to be a preferred business structure is that s. 87 of the Indian Act provides a tax exemption in certain situations to Indians. Canadian Courts have said that business income earned by an Indian on reserve (if the requirements of the legal test are met) is not subject to income tax. Therefore, because there is no legal separation between the sole proprietorship and the owner, there will not be any income tax payable on the business income earned by a Status Indian running a sole proprietorship business on a reserve, as long as all relevant conditions are met.
However, it is important to note here that this exemption does not apply to Aboriginal entrepreneurs who operate a business off-reserve, as is often the case these days. The exemption would also NOT be available to an incorporated business, even if its shareholders are all Status Indians. Corporations will be discussed in an upcoming article.
This article is not intended to be a full review of all possible legal issues and is NOT legal advice. There are many other important legal considerations to be made when choosing how to operate a business, and for this reason entrepreneurs should always contact a lawyer to obtain legal advice. It is always easier, and often less costly in the long run, to start off correctly, than to change things later.