Koroll & Company Blog

Should You Incorporate Your Business?

[fa icon="calendar"] Oct 26, 2021 7:30:00 AM / by Allen Koroll

When you start a small business in Canada, you have the option to structure your business in one of three ways. You can be a sole proprietor, enter into a partnership or run a corporation by incorporating your business. 

If you are already operating a business or have been looking into starting one for a while, you may have heard the many benefits of incorporating, such as limited liability, lower tax rates, and the lifetime capital gains exemption. 

In many instances, choosing to incorporate can be very beneficial. But it all depends on the type of business you are running, where you operate and what your goals are. 

So, let’s take a quick look at the characteristics of each business structure. 

  1. Sole proprietorship 

A sole proprietorship is owned by one person and that person: 

  • Makes all the business decisions
  • Receives all the business’s profits 
  • Is personally liable and assumes 100% of the risk

With sole proprietorships, the Canada Revenue Agency sees the business and owner (called the sole proprietor) as one and the same. That means that a creditor or someone taking legal action against the business can go after all your assets, whether business or personal. You must also file your business taxes with your personal taxes, which means the business income is taxed using personal rates. 

  1. Partnership 

A partnership is a business owned by two or more people. The owners of the business choose how profits are divided and are both liable for debts and legal actions against the business. Like a sole proprietorship, legal liability extends to personal assets and well as business assets. 

Partners of the business file their share of income and expenses on their personal income taxes and are then taxed at the applicable personal rate. 

  1. Corporation 

Unlike sole proprietorships and partnerships, corporations are a separate legal entity. This means that owners, in most situations, are protected from being personally liable for debt or legal actions against the business. Corporations can be owned by an individual or have multiple shareholders. 



Sole Proprietorship




1 owner

2 or more owners

1+ owners; usually owned by multiple shareholders

Gains and Losses

All profits go to the single owner

Earnings are split between partners

Shareholder dividends


Owner carries liability 

Partners usually share liability 

Separate legal entity; shareholders aren’t usually liable 


Owner is taxed on personal income tax return

Owners are tax on their income tax returns

Corporation is taxed as a separate “person”


Benefits of incorporating 

The main benefits of incorporating are that corporations: 

  1. Protect the owners by separating the legal liability of the company and the shareholder. If the business is sued or creditors come after your business for money owed, your personal assets will be protected in most cases. 
  2. Allow you to take advantage of lower tax rates. 
  3. You can defer personal taxes by leaving money in the corporation or reinvesting back in the business.
  4. When you decide to sell your business, you can avoid paying taxes on all or part of the income using the Lifetime Capital Gains deduction. 

To determine which structure is best for your unique situation, contact us today to speak with our team of professionals.  

Book A Free Consultation

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

About Koroll & Company

At Koroll & Company we grow our firm through satisfied clients referring us as a trusted accounting firm to their friends, family members and associates. The only way we know how to achieve this is strive to exceed your expectations and provide you with exceptional service. We have 20+ years servicing Newmarket, ON and the surrounding areas, and look forward to servicing you next. So give us a call and speak to a friendly staff member from Koroll & Company today!

Topics: Education, Small Business

Allen Koroll

Written by Allen Koroll