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Sole proprietor or corporation?
Compare responsibilities, returns, costs and questions for your adviser.
| Question | Sole proprietor | Corporation |
|---|---|---|
| Setup and ongoing cost | Registration/licence requirements depend on your location and business name. Often less administration. | Incorporation, annual corporate filings and professional/accounting costs; actual fees vary. |
| Tax return | Generally personal T1 with T2125 business reporting. | A separate T2 corporate return, plus personal reporting for amounts paid to you. |
| Tax structure | Net business income enters your personal tax calculation, whether or not withdrawn. | Corporate tax and salary/dividend choices interact. Retaining profit may defer personal tax, but incorporation does not guarantee a total tax saving. |
| Legal identity and liability | You and the business are not separate legal persons; personal assets can be exposed. | A separate entity with limited liability; personal guarantees, director obligations and other exceptions still matter. |
| Record keeping | Keep business records and business/personal allocations clearly documented. | Maintain separate corporate books and document shareholder transactions, payroll/dividends and statutory records. |
| When to discuss it | A straightforward business operated by one person may suit this structure; assess commercial and personal risks. | Discuss growth, retained profits, partners, client requirements and risk with an accountant and lawyer; there is no universal income cutoff. |
Bring these questions to your advisers
How much cash must I withdraw to live on? What profit can stay in the business? What legal risk, annual administration, payroll and exit costs will I take on? Ask for a combined corporate-and-personal comparison.