Sole Proprietor vs. Corporation: Which Is Right for You?
The most common question we hear from Canadian business owners. Here’s the honest, plain-English comparison — and the point where incorporating actually starts to pay off.
There’s no universal answer — it depends on your profit, your risk, and how much you take out personally. Here’s how the two stack up.
| Factor | Sole Proprietor | Corporation |
|---|---|---|
| Tax on profit | Your personal marginal rate (up to ~53.5% in BC) | ~11% small-business rate in BC on the first $500k, then deferred |
| Liability | You’re personally on the hook | Limited — the company is separate from you |
| Setup & cost | Low — just register | Higher — incorporation + annual T2 & filings |
| Paperwork | One T1 with a T2125 | Separate T2, bookkeeping, payroll/dividends |
| Best when | Profit ≈ what you need to live on | Profit exceeds your personal spending |
The short version
If you’re spending everything the business earns, a sole proprietorship keeps life simple. The moment you’re consistently leaving profit in the business, a corporation lets you defer a big chunk of tax and adds liability protection — that’s usually the tipping point. Want to see your own numbers? Try our incorporation savings calculator or book a free consult and we’ll tell you straight.
This is general information, not tax advice. Rates are approximate 2026 BC figures and change with income and circumstances.
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