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You got a business loan, found the clients and are even generating income. Now, it may be time for the next phase of entrepreneurship: giving your company a legal identity.
There are three general ownership structures for a business: sole proprietorship, incorporation and partnership, each with its own set of pros and cons.
Experts say the right structure depends on your vision for the long term as well as your income expectations from the business.
“If you’re starting your business on your own and it’s just you, you’ve got the choice of either operating the business in your own name as a sole proprietor or incorporating,” said Jordan Dolgin, president of business law firm Dolgin Professional Corp.
The sole proprietor structure, as the name suggests, isn’t available for more than one person, Dolgin said.
Sole proprietorship can be a good option for entrepreneurs who are just starting out.
You generally need a business licence from your municipality and a business number from the Canada Revenue Agency for tax purposes to set up a sole proprietorship, said Ryan Minor, director of tax at CPA Canada.
Minor said one advantage to being a sole proprietor is that the owner can deduct losses from the business against other sources of income, such as wages from other jobs or investment gains, if the business isn’t doing great for the first few years.
If two or more individuals start a business, they have the option to form a partnership — similar to sole proprietorships, except there is more than one owner.
Minor said partnerships are “pretty cost-effective” because the owners are sharing the costs of starting a company. However, he suggested hiring a lawyer to draft a partnership agreement, which might prove helpful if the partnership doesn’t work out.
Dolgin said incorporation is usually the next step for sole proprietors as the business grows.
When a business incorporates, Dolgin said they choose a corporate name which usually ends with “corporation,” “incorporated” or “limited,” either in its abbreviated form or fully spelled out. He said there’s no major difference between those terms — their general purpose is to signal to the world that the business is a separate legal entity.
“It’s a legal requirement,” he said.
“The Inc. or the Corp. or the Ltd. is really there to let the public know that they’re doing business with a corporation and, as a result, the shareholders have limited liability,” Dolgin said.
That typically means there won’t be legal recourse against shareholders, which includes the company founder, if something goes wrong. If you’re more established with significant personal net worth, incorporating may help protect your personal assets from company creditors or lawsuits.
Business owners should keep in mind that there are administration costs of both incorporating and maintaining the company, including bookkeeping, record keeping and additional year-end taxes, Dolgin said.
The basic process of incorporating can cost a few hundred dollars, while getting professional help from lawyers and accountants will cost extra.
The costs can be high, Dolgin said, but it helps protect your assets if the business doesn’t succeed.
Incorporating can also be quite attractive because of the potential tax breaks at play, which vary by province, Minor said.
If you ever sell, Minor said the owner may be able to take advantage of the lifetime capital gains exemption.
While there’s no right answer, Dolgin suggested people starting a new business opt for a sole proprietorship to keep expenses as low as possible.
“You don’t want to spend the money to incorporate just yet because you’re on a budget,” he said.
Dolgin said it may be better to put that money into product development and hiring, rather than paying lawyers and accountants to incorporate the firm.
Some people, Dolgin said, “will start simple, keep the costs low.
“They’ll be a sole proprietor and they wait and see how the business goes,” he said. “If a year later, the business is successful, often they’ll make the decision with their accountant to incorporate it at a later date.”
This report by The Canadian Press was first published Feb. 26, 2026.
Ritika Dubey, The Canadian Press
