Sole Proprietorship vs. Incorporation in Ontario: 5 Key Differences (2026)


One of the most common questions new entrepreneurs in Ontario ask is: "Should I register as a sole proprietorship or incorporate?" The answer affects your taxes, liability, and wallet. In 2026, understanding the distinction is more critical than ever.

1. Liability and Risk

Sole Proprietorship: You and the business are one entity. If the business has debts or is sued, your personal assets (house, car, savings) are at risk.

Incorporation: The corporation is a separate legal entity. Shareholders are generally not personally liable for the company's debts. This "corporate veil" provides a significant layer of protection.

2. Setup Costs and Administration

Sole Proprietorship: Low cost. You can register a Master Business License for roughly $60-$80. Paperwork is minimal.

Incorporation: Higher cost. Incorporation fees in Ontario range from $300 to $360 (plus legal fees if you hire a lawyer). You must also maintain a minute book and file separate corporate tax returns.

3. Tax Differences

  • Sole Proprietorship: Business income is taxed at your personal income tax rate. If you earn a lot, you could be pushed into a high tax bracket.
  • Incorporation: Corporations pay a lower tax rate (Small Business Deduction). You can choose how much to pay yourself in salary or dividends to optimize your personal taxes.

4. Name Protection

A sole proprietorship does not have name protection. Someone else could incorporate a company with a very similar name. Incorporation, however, gives you exclusive rights to your business name within Ontario.

5. Future Growth and Funding

If you plan to raise capital from investors or sell the business later, incorporation is almost mandatory. Investors rarely put money into sole proprietorships.

Verdict

If you are testing a side hustle with low risk, a sole proprietorship is a great start. If you are launching a high-growth startup or carrying significant liability, incorporation is the safer bet.

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