Mary-Jo asked:

I regret incorporating my business, and wish to convert it into simply a sole proprietorship. Is that possible?

Michael Fromstein answered:

Most mistakes can be corrected, some at more expense. Without a lot more information, I am not sure that you really incorporated your business. If you started off carrying on the business for a while, you might have incorporated a company. Then, if the corporation was to carry on that business you should have sold to that corporation all of the business assets you used to carry on your business. That would have included customer list, goodwill, equipment, accounts receivable. As a sole proprietor, you should have reported that disposition on your personal tax return.

If you did not do that, either the corporation was not carrying on the business - maybe it just let you use its name. If that is the case, you might want to retain the image of having a corporation and document that it is letting you use its name. Most lawyers can help you with a "bare trust" agreement that will confirm in writing the relationship.

If you started the business and incorporated or have already reported a tax return with the corporation reporting the profit/loss from carrying on the business - then it is a reasonable position that the corporation does in fact own the business.

You can get the business back - but you have to buy it back at Fair Market Value. If you just "take it back" - Canada Revenue Agency can assess both you and the corporation a number of penalties. However, buying it back might not be expensive - likely the corporation owes you for the acquisition of the assets.

In addition, the significant expense of cleaning out a corporation occurs when the corporation has held assets for a long time that have increased in value or retained profits for a long time and those non-taxed corporate profits will trigger tax when the assets leave the corporation. That is not likely too significant in a smaller corporation that has only been around a relatively short period.

However, to properly report the transaction, you should have an accountant assume responsibility for reporting the transactions properly.

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