Should I choose a sole proprietorship or a corporation in Ontario?

Choose a sole proprietorship in Ontario when you're starting out with revenue under $50,000-$80,000 per year. Choose a corporation when net profits exceed approximately $80,000 per year or when liability exposure is significant. Most Ontario small businesses should start as a sole proprietorship and incorporate later.

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

A sole proprietorship is owned and taxed personally, has unlimited liability, and costs $60 to register. A corporation is a separate legal entity, offers limited liability, has access to the small business tax rate of 12.2% in Ontario, and costs $300 to incorporate plus ongoing annual filings.

At what income should I incorporate in Ontario?

Most Ontario accountants recommend incorporating once net profits consistently exceed $80,000 to $100,000 per year and you don't need all of it for personal expenses. Below that level, the tax deferral benefit is usually outweighed by the cost and complexity of maintaining a corporation.

Sole Proprietorship vs Corporation in Ontario: Which Should You Choose?

Q: Can I switch from sole proprietorship to corporation later?

Yes. You can incorporate at any time and roll assets from your sole proprietorship into the new corporation using a Section 85 rollover to avoid immediate tax consequences. This is a common path for Ontario small businesses once profits justify the switch.

Most Ontario small businesses should start as a sole proprietorship. Corporations make sense once net profits consistently clear around $80,000/year, or when liability is serious. Here is the direct comparison and when to switch.

Side-by-side comparison

Registration cost: Sole prop $60 / Corp $300
Renewal: Sole prop every 5 years / Corp annual filing required
Liability: Sole prop unlimited / Corp limited to corporate assets
Tax rate: Sole prop personal rates (20-53%) / Corp small business rate 12.2% in Ontario
Paperwork: Sole prop trivial / Corp requires T2, minute book, resolutions
Accountant fees: Sole prop $0-$500 / Corp $1,000-$2,500+
Income splitting: Sole prop none / Corp limited (TOSI rules apply)

When is sole proprietorship the right call?

Sole proprietorship wins when you're starting out, revenue is under ~$80K net, and your business carries low liability risk (consulting, services, most online businesses). It's cheap, fast, and your losses can offset other personal income — a real advantage in year one.

When is incorporating the right call?

Incorporate when one or more of these is true:

Net profits over ~$80,000/year and you don't need all of it personally
Real liability exposure — physical products, construction, professional advice
You plan to raise outside capital or bring on partners
Clients require you to be incorporated (common in B2B and government contracts)
You want to split income with a spouse or family (subject to TOSI rules)

How to switch from sole proprietorship to corporation

Work with an accountant on a Section 85 rollover. This lets you transfer assets from the sole proprietorship to the new corporation at their tax cost, avoiding immediate capital gains. Budget $1,000-$2,500 for the accountant and legal work. Update your bank, CRA accounts, contracts, and CRM. If you're on a tool like Threecus, the client records and invoicing stay intact through the switch.

Side-by-side comparison

When is sole proprietorship the right call?

When is incorporating the right call?

How to switch from sole proprietorship to corporation

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