Sole proprietorship or corporation in Ontario: which should you register?
Key takeaways
- A sole proprietorship is the simplest structure: you and the business are legally the same.
- A corporation is a separate legal entity, which can limit your personal liability but adds paperwork and cost.
- Many small businesses start as sole proprietorships and incorporate as they grow.
- The right choice depends on your risk, income and plans. Speak with an accountant or lawyer before deciding.
This article is general information for Ontario business owners. It is not legal or tax advice.
One of the first decisions a new business owner faces is how to set the business up. In Ontario the two most common choices are a sole proprietorship and a corporation. Here is the difference in plain language.
What is a sole proprietorship?
A sole proprietorship is a business owned and run by one person. There is no legal separation between you and the business.
- Simple to start. If you trade under a name other than your own, you register that business name with the province.
- Simple taxes. Business income is reported on your personal tax return.
- Personal liability. You are personally responsible for the debts and obligations of the business.
What is a corporation?
A corporation is a separate legal entity. It can own property, sign contracts and owe money in its own name. You can incorporate provincially in Ontario or federally.
- Limited liability. In general, shareholders are not personally responsible for the debts of the corporation, although there are exceptions such as personal guarantees.
- More paperwork. A corporation files its own tax return and keeps corporate records.
- More cost. There are government fees to incorporate and usually higher accounting costs each year.
- More flexibility. A corporation can have several shareholders and may offer tax planning options your accountant can explain.
Side by side
| Sole proprietorship | Corporation | |
|---|---|---|
| Legal status | You and the business are the same | Separate legal entity |
| Liability | Personal | Generally limited |
| Tax return | Your personal return | Separate corporate return |
| Setup and upkeep | Lower cost, less paperwork | Higher cost, more paperwork |
Questions to help you decide
- How much risk does the business carry? Work with higher risk of claims often points toward incorporating.
- How much do you expect to earn, and will you leave money in the business?
- Will you have partners or investors?
- Do clients or lenders in your industry expect you to be incorporated?
Many owners start as a sole proprietorship to keep things simple and incorporate later. An accountant can tell you when that switch makes sense for your numbers.
We can handle the filing for you
Launchwell Studio files business registrations and incorporations as part of every launch package, or on its own. Government fees are extra.
Ask about registrationQuick answers
Is it better to be a sole proprietor or incorporated in Ontario?
Neither is better for everyone. A sole proprietorship is simpler and cheaper; a corporation is a separate legal entity that can limit personal liability but costs more to set up and maintain. An accountant or lawyer can advise on your situation.
Do I need to register my business name in Ontario?
If you operate under a name other than your own legal name, you generally need to register that business name with the province.
Can I start as a sole proprietor and incorporate later?
Yes. Many small businesses start as sole proprietorships and incorporate as revenue or risk grows.
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