Should I Incorporate My Canadian Small Business?

Last Updated: June 12, 2013

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Last updated: Jun. 12, 2013

You have your business up and running, perhaps as a sole proprietorship or a partnership and are now seeing some growth and profit.

You may be wondering if you should now incorporate your business.

The following is a list of possible advantages and disadvantages of the most common forms of business structure.

Sole Proprietorship

A sole proprietorship is a business owned by one person, called a “proprietor.”

Advantages

Simplest and least expensive to set up
Minimal registration requirements
Owner in direct control
Possible tax benefits (losses can be applied against other income of proprietor)

Disadvantages

Owner assumes all risk of business; responsible for payment of all business debts. Creditors can seize your personal assets.
Lack of continuity (ownership not transferable)
Difficult to raise capital
Possible tax disadvantages (profits must be added to personal income)

Business owned by two or more individuals or corporations.

Advantages

Disadvantages

A separate legal entity which can enter into contracts and own property separately and distinctly from its owners who are the shareholders.

Advantages

Limited liability (generally limited to individual’s personal investment in the business)
Continuous existence (ownership transferable)
Easier to raise capital (i.e. money for the business can be raised by selling shares)
Possible tax advantages

Disadvantages