Starting a Business in Ontario: Sole Proprietorship vs. Corporation
Every new business in Ontario faces the same first decision: register as a sole proprietor or incorporate? The right choice depends on your income level, liability exposure, long-term plans, and how you want to pay tax.
Sole Proprietorship
A sole proprietorship is the simplest form of business — you and the business are legally the same entity. There is no separation between personal and business assets.
| Sole Proprietorship | |
|---|---|
| Setup cost | ~$60 for Ontario business name registration |
| Liability | Unlimited — personal assets at risk |
| Tax filing | Report on personal T1 return (Schedule T2125) |
| HST threshold | Must register once revenue exceeds $30,000/year |
| Annual filings | Business name renewal every 5 years |
If you operate under your own legal name (e.g., John Smith Consulting), no registration is required. If you use a trade name (e.g., "Sunrise Cleaning Co."), you must register it under the Business Names Act.
Ontario Corporation (Inc.)
Incorporating creates a separate legal entity. The corporation — not you personally — enters contracts, owns assets, and incurs debts. This separation is the core benefit.
| Ontario Corporation | |
|---|---|
| Setup cost | ~$300 (Ontario) or ~$200 (federal) + NUANS + legal fees |
| Liability | Limited — shareholders generally not personally liable |
| Tax rate | Small Business Deduction: ~12.2% on first $500,000 of active income |
| Tax filing | Separate T2 corporate tax return annually |
| Annual filings | Ontario annual return ($12.50/year via Service Ontario) |
Key Advantages of Incorporating
- Limited liability: Your personal home, savings, and assets are protected from business creditors (unless you sign a personal guarantee).
- Tax deferral: Corporate income taxed at ~12.2% federally+provincially; personal top rate is ~53.5%. Leaving profits in the corporation defers personal tax.
- Credibility: Many clients, contracts, and lenders require dealing with an incorporated entity.
- Lifetime Capital Gains Exemption (LCGE): When you sell shares of a qualifying small business corporation, up to ~$1 million in capital gains may be tax-free.
NUANS Name Search
Before incorporating, you must conduct a NUANS (Newly Upgraded Automated Name Search)report to confirm your proposed corporate name is not already in use or confusingly similar to an existing one. A NUANS report costs ~$13.80 and is valid for 90 days.
Alternatively, you can incorporate a numbered company (e.g., 1234567 Ontario Inc.) — no name search required — and register a trade name separately.
HST Registration
Regardless of business structure, you must register for HST once you exceed $30,000 in taxable revenue in any single quarter or over four consecutive quarters. Voluntarily registering early allows you to claim Input Tax Credits (ITCs) on business expenses immediately.
Minute Books & Corporate Records
Every Ontario corporation must maintain a minute book containing:
- Articles of Incorporation
- By-laws
- Director and officer resolutions
- Shareholder register
- Annual meeting minutes (or signed waiver)
Failing to maintain minute books is a common and costly oversight — it can cause problems when selling the business, obtaining financing, or dealing with CRA audits.
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