Introduction: Why Your Business Structure Matters
Registering a business in Ontario involves more than just completing forms. One of the most important early decisions is choosing your business structure. Most entrepreneurs in Ontario choose between a sole proprietorship and a corporation. This decision impacts taxes, liability, paperwork, and your ability to grow or attract investment.
Think of a sole proprietorship like riding a bicycle. It’s quick to get started and easy to steer, but you’re more exposed if something goes wrong. A corporation, by contrast, is like driving a car with safety features. It requires more maintenance and paperwork but offers better protection.
70% of Canadian businesses operate as sole proprietorships, making it the most common structure for entrepreneurs due to low startup costs and simplicity
[Source: Canada Revenue Agency].
Ontario hosts 37.7% of Canada’s small businesses (407,428 enterprises), the highest concentration nationwide [Source: Key Small Business Statistics 2024].
Ontario offers a 3.2% rate on the first $500,000 of active income, while general corporate rates drop to 11.5% beyond this threshold [Source: Ontario Budget 2025].
What Are the Options When Registering a Business in Ontario?
Most small businesses in Ontario register under one of these two structures:
Sole Proprietorship in Ontario
This is the simplest and most common way to start a business.
Pros:
- Easy and inexpensive to register
- Complete control over decisions
- Less paperwork
- Income is reported on your personal tax return
Cons:
- You are personally responsible for all debts
- Raising money from investors can be difficult
- Limited tax planning options
Incorporating a Business in Ontario
Incorporation creates a separate legal entity for your business.
Pros:
- Limited personal liability
- Lower tax rate on the first $500,000 of active income (around 12.2%)
- Possible income splitting and tax deferral
- Easier to attract investors
Cons:
- Higher startup and ongoing accounting costs
- Separate tax return required
- Need to keep detailed corporate records
CRA Requirements for Each Structure
For Sole Proprietors:
- Register your business name with ServiceOntario (unless using your legal name)
- Report income using Form T2125 with your personal return (T1)
- HST registration is required if you earn more than $30,000 per year
- CRA business number is optional unless you need it for HST, payroll, or importing/exporting
For Corporations:
- Incorporate federally or provincially through ServiceOntario or Corporations Canada
- A CRA business number is automatically issued
- You must set up a corporate tax account, and possibly HST and payroll accounts
- File a corporate tax return (T2) within six months of fiscal year-end
Source: Canada Revenue Agency – Business Registration Guide 2025
What Are the Tax Implications of Each Structure?
Tax Factor | Sole Proprietorship | Corporation |
Filing | Personal return (T1) + Form T2125 | Corporate return (T2) + T1 for personal income |
Tax Rate | Up to 53.53% in Ontario | ~12.2% for first $500,000 of active business income |
CPP Contributions | Owner pays both employer and employee portions | Applies only to salaries paid to shareholders |
Losses | Can offset other personal income | Losses stay within corporation |
Income Splitting/Deferral | Not available | Possible with family shares or retained profits |
When Should You Incorporate in Ontario?
You should consider incorporation when:
- Your business earns over $75,000 annually
- You want limited liability protection
- You plan to attract investors or raise capital
- You want to reinvest profits and defer taxes
- You’re building long-term equity or selling the business later
If you’re just testing an idea, freelancing, or earning minimal income, starting as a sole proprietor may be more practical.
FAQs About Registering a Business in Ontario
1. Do I need to register my business name?
Yes, unless you’re operating under your exact legal name. Sole proprietors must register through ServiceOntario, and corporations choose a name during incorporation.
2. Can I change from sole proprietor to corporation later?
Yes, but you’ll need to register a new entity, possibly transfer assets, and notify the CRA. A professional can help structure the transition efficiently.
3. Do both structures need a CRA business number?
Not necessarily. Sole proprietors only need one if registering for HST, payroll, or importing. Corporations are automatically issued one upon incorporation.
Source: Canada Revenue Agency – 2025 Business Number Guide
Final Thoughts: Choosing Smart When Registering a Business in Ontario
Choosing the right structure when registering a business in Ontario isn’t just a legal formality. It affects how much tax you pay, the level of personal liability you take on, and how your business can grow in the future. While a sole proprietorship may work well for getting started, incorporation might offer advantages as your business income increases or your plans evolve. Understanding these differences early can help you avoid costly changes later.
If you’re uncertain about which structure fits your goals, AccTax offers support to help you evaluate your options. We walk you through each step of the registration process and help ensure your setup aligns with your financial and legal needs.
Book a consultation today and register your business with clarity and confidence.