What is the difference between a sole proprietorship and a corporation in Ontario?

A sole proprietorship is the simplest business structure where the owner and business are legally the same. A corporation is a separate legal entity that provides limited liability, tax planning opportunities, and a more formal structure.

How do I decide between a sole proprietorship and incorporating in Ontario?

Your choice depends on your risk level, long-term goals, expected income, and need for liability protection. Many start as sole proprietors and incorporate later once revenue and risk increase.

What are the benefits of a sole proprietorship in Ontario?

Benefits include low startup costs, simple setup, minimal paperwork, and straightforward taxes. It is ideal for testing business ideas or operating with low risk.

What are the advantages of incorporating a business in Ontario?

Incorporation offers limited liability, tax planning benefits, potential income splitting, enhanced credibility, and better opportunities for long-term growth and investment.

Is a corporation better for taxes than a sole proprietorship in Ontario?

Corporations may benefit from lower corporate tax rates and more tax planning options. Sole proprietors pay personal income tax on all profits. The best choice depends on your income and business goals.

Do I need to register a sole proprietorship in Ontario?

If you use a business name that is not your full legal name, you must register it. If you operate under your personal legal name only, registration is not required.

Are my personal assets protected as a sole proprietor in Ontario?

No. Sole proprietors have unlimited personal liability, meaning personal assets may be at risk if the business incurs debt or legal issues.

Does incorporating in Ontario protect my personal assets?

Yes. A corporation is a separate legal entity, which generally protects your personal assets from business liabilities and debts.

How much does it cost to incorporate vs. register a sole proprietorship in Ontario?

Registering a sole proprietorship is more affordable, while incorporating has higher fees due to government filing costs and legal requirements. Optional services like name searches can affect total cost.

Which is better for a small business in Ontario: sole proprietorship or corporation?

For low-risk or early-stage businesses, a sole proprietorship is often sufficient. For growing businesses, higher revenue companies, or those wanting liability protection, incorporation is typically the better choice.

Can I start as a sole proprietor and incorporate later?

Yes. Many Ontario business owners begin as sole proprietors to keep costs low, then incorporate once their business grows or risk increases.

Do corporations in Ontario need more paperwork than sole proprietorships?

Yes. Corporations must maintain corporate records, file annual returns, issue shares, and keep director information updated. Sole proprietorships have fewer ongoing requirements.

Is a corporation better for credibility and growth in Ontario?

In many industries, a corporation appears more established and credible. It can help with securing contracts, partnerships, financing, and long-term expansion.

What is the easiest way to choose between a sole proprietorship and incorporation in Ontario?

The easiest way is to compare your risk level, income expectations, and long-term goals. If you want liability protection and tax planning options, incorporation may be best. A guided business registration service can help you decide.

Sole Proprietorship vs. Corporation in Ontario: Which One's Right for You?

Lisa Shaw
Aug 1
3 min read

Updated: Nov 26

If you're starting a business in Ontario, one of the first — and biggest — decisions you'll make is how to structure it. The most common options? Sole Proprietorship and Corporation.

Both are legal ways to operate a business; however, they each have very different rules, responsibilities, and benefits. Let's break them down so you can decide which one best fits your goals.

What Is a Sole Proprietorship?

A sole proprietorship is the simplest form of business ownership. It's just you running the show. Legally, there's no separation between you and your business — you are the business.

Pros:

Easy and inexpensive to set up
Full control — you make all the decisions
Fewer paperwork and tax filing requirements
All profits go directly to you

Cons:

Unlimited personal liability — if your business owes money or gets sued, your personal assets (like your car or home) could be at risk
Harder to raise money or get investors
Business income is taxed at your personal rate (which can get high as profits grow). This also means that if you run your business while also working another job, it all gets added together as your income.

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What Is a Corporation?

A corporation is a separate legal entity from its owners (shareholders). That means the business can own property, enter into contracts, and be held liable — not you personally.

Pros:

Limited liability — you're generally not personally responsible for business debts
Potential tax advantages — corporate tax rates are lower than personal income tax rates for profits retained in the company
Easier to raise capital or bring on investors
More credibility with banks, suppliers, and clients

Cons:

More complex and expensive to set up (filing Articles of Incorporation, creating bylaws, etc.)
Ongoing paperwork and legal obligations (like annual filings and separate corporate tax returns)
You can't just pull money out — you must pay yourself through salary or dividends

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Cost to Register in Ontario

Structure Startup Government fees:

Sole Proprietorship $60 (online via ServiceOntario)

Corporation $200 (Federal), $300 (Ontario)

Tax Differences

Category Sole Proprietorship Corporation

Tax Filing Personal income tax return (T1) Corporate return (T2)

+ possible T1 for salary

Tax Rates Based on personal tax brackets Lower small business

rate (~12.2% in Ontario 2024)

Income Distribution All profits = personal income Can split income with dividends, retain earnings

Liability Protection

Sole Proprietor: No protection — if you're sued, your personal assets are at risk.
Corporation: Your liability is limited to the amount you've invested in the company.

If you're in a high-risk industry, incorporating might offer peace of mind.

So… Which Should You Choose?

Here's a quick way to think about it:

Choose Sole Proprietorship if...

You're testing a new idea or freelancing
You want low startup costs
You're okay with personal risk
You're a solo operator with minimal overhead

Choose Corporation if...

You want to scale or seek investors
You want legal/tax separation between you & the business
You need credibility or want long-term tax benefits
You're planning to grow or hire employees

Final Thoughts

There's no one-size-fits-all answer — it really depends on your goals, income, and risk tolerance. Many entrepreneurs start as sole proprietors, then incorporate later as the business grows.

If you're unsure, talk to a small business accountant or lawyer. A quick chat can save you a ton of time (and money) down the road.

Ready to register your business in Ontario?

We can help - head on over to the registration page to start inputting the info, and we'll handle the rest. If you hit any bumps along the way, just give us a call. We're here to help guide you along the way.

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