Corporation vs Sole Proprietorship

Corporation vs Sole Proprietorship, what do you need to know?

When starting a business, one of the decisions you will have to make is choosing the legal structure, Corporation vs Sole Proprietorship. The government provides you with four options to choose from, but Sole Proprietorship and Corporation are the two most common choices.

The choice between a Corporation and a Sole Proprietorship is a pivotal moment in your business journey. Understanding the advantages and disadvantages of each structure is essential to make the right decision. Remember that every business is unique, and what works best for one may not be suitable for another. Seek professional advice to ensure your business structure aligns with your long-term goals and financial well-being.

What is Sole Proprietorship?

As the title suggests, you are the sole owner of your business. This means you take on all responsibilities, profits and debts of your company.

Benefits of a sole proprietorship

It’s simple and quick to register.

You enjoy full control over decision making, no need for board or shareholder approvals.

Deduct business losses from personal income, helping you remain in a lower personal income tax bracket.

Low startup costs.

Considerations and risks of a sole proprietorship


You’re fully liable. If your business incurs debt, you are personally responsible. That includes incurred debt and lawsuits that may come your way via creditors or clients.
If your business becomes profitable, it means you’ll personally pay more taxes, since your profits put your income into a higher tax bracket.
Raising money is more difficult if you’re a sole proprietorship. Financial institutions and investors may require your business to be incorporated before they give you a loan or make an investment.

Success as a Sole Proprietor: A Small Business Owner’s Testimonial

I’ve often heard that the grass is greener on the other side, but after years of running my small business as a Sole Proprietor, I can confidently say that I’ve found my perfect patch of green. Staying as a Sole Proprietor has been the best decision I’ve made for my business, and I’m thrilled to share my experience.

As a Sole Proprietor, I cherish the freedom and flexibility I have in making decisions. I don’t have to consult with a board of directors or shareholders. My business is entirely my vision, and I can pivot and adapt as I see fit. This autonomy allows me to respond quickly to market changes and seize new opportunities.

Running a Sole Proprietorship keeps things simple. I don’t have the administrative complexities that come with larger corporate structures. The low overhead costs mean I can invest more in growing my business and serving my clients, rather than in paperwork and compliance.

Maria – Cleaning business

Corporation vs Sole Proprietorship

What is a Corporation?

Regardless of whether you incorporate under provincial law or federal law, incorporating means that your business functions as its own legal entity, distinct from you as an individual. Once incorporated, the company gains the ability to enter into contracts, own property, incur debt, and initiate or defend legal actions. Since an incorporated company is a separate entity, it is necessary to file a separate corporate tax return under your business account. Shareholders, directors, and officers assume the responsibility of making decisions for the company and are typically not personally liable for the corporation’s debts and liabilities.

Benefits of corporation

Limited liability means your exposure to any retribution should your business not do well is limited.

The ability to transfer ownership if you sell your business.

Raising capital from investors and financial institutions is easier.

There are a number of possible tax advantages that can be explored.

Be better prepared for legacy and estate planning as your business theoretically exists forever.

Considerations and risks of a corporation

Stricter regulations, you’ll need to ensure all your paperwork is in order.

Setting up a corporation is more expensive than a sole proprietorship.

There’s a lot more paperwork involved with corporations, including yearly documentation that must be filed with the government.

Existing shareholders and directors opens up the potential for internal conflict.

You will have to maintain ongoing paperwork filings to continue to run.

The Path to Success: Incorporating My Small Business for Growth

I wanted to take a moment to share my journey as a small business owner who faced a pivotal decision: whether to incorporate my business. The decision turned out to be a game-changer, and I’m thrilled to share my experience.

As the owner of a small business, I initially started as a Sole Proprietor, relishing the simplicity and autonomy that came with it. However, as my business grew, I found myself facing exciting opportunities and challenges that demanded a more structured approach.

One of the main reasons I decided to incorporate was to separate my personal assets from the business. By forming a corporation, I gained personal liability protection. This shielded my personal assets from potential business debts or legal issues, providing me with peace of mind.

Incorporating my business allowed me to attract investors and secure additional capital for expansion. The corporate structure made it easier to issue shares and bring on stakeholders who believed in my business’s potential.

Operating as a corporation added a layer of credibility to my business. It instilled confidence in both clients and partners, enhancing our reputation within the industry.

Incorporating my business was a strategic move that aligned with my long-term vision. It allowed me to plan for succession and ensure the business’s continuity beyond my tenure as the owner.

Incorporating my small business was a pivotal step in our journey to success. It has provided me with the foundation to navigate growth effectively and strategically. While the decision to incorporate may not be right for every small business, it was undeniably the right choice for mine.

Tim – General Contractor

Corporation vs Sole Proprietorship

Now the big question: Will I be paying more taxes with Corporation vs Sole Proprietorship?

Canada’s tax system incorporates a concept known as ‘integration.’ This concept implies that when a dollar is earned within a corporation and subsequently disbursed to a shareholder (in the form of a salary or dividend), the tax paid will be equivalent to what would have been paid if the shareholder had earned the same dollar through a sole proprietorship. When a business’s net income is entirely distributed to its owners, the tax system remains unaffected by the company’s structure.

Thus, the owner(s) of a business needs to decide if there is an opportunity to retain earnings within the company for reinvestment or if all the income will be disbursed to the shareholders to cover personal expenses. In the latter case, incorporating the business becomes unnecessary for tax purposes.

Contact us today ensure that the proper structure is in place for your business. If you would like to setup my business account, please reach out — we love chatting with entrepreneurs and we’d love to hear your story.

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