Switching from a sole proprietorship to a corporation means turning your business into its own legal entity instead of running everything under your personal name.
It can mean tax deferral (if you keep your savings in the business) and more protection of your personal assets (as it provides a corporate veil).
Once you incorporate, the corporation becomes the owner of the assets, the contractor in agreements, the employer of staff, and the taxpayer responsible for its own filings. This shift affects how taxes work, how liability is handled, and how the business grows.
If you are considering making the transition, this guide serves as a master overview that connects all major topics related to incorporation.
Below is a comprehensive breakdown of what incorporation means, why business owners make the switch, and how this decision affects legal, tax, and operational areas of your business.
A sole proprietorship is the simplest business structure. You and the business are legally the same person.
Key characteristics include:
This structure works well in the early stages of a business when risk, revenue, and operational complexity are relatively low.
For guidance on choosing the right time to incorporate, see: When Should I Incorporate My Business.
A corporation is a separate legal entity with its own rights and responsibilities.
Key features include:
Corporations offer more flexibility and long term planning opportunities than sole proprietorships.
For a deeper look at corporate setup, see: How to Incorporate Your Business.
Here are the most common reasons entrepreneurs decide to convert their sole proprietorship into a corporation.
A corporate structure protects your personal assets from business related risk. This becomes important when:
Incorporation gives access to several tax strategies, including:
For a full analysis of timing and tax implications, see: When Should I Incorporate My Business.
Corporations often appear more established. This matters when:
A corporation allows you to:
A sole proprietorship cannot support these structures.
Transitioning from sole proprietorship to corporation affects several parts of the business.
The corporation becomes the legal owner of:
Your role becomes that of a shareholder, director, or officer.
New obligations include:
The way you withdraw money also changes. You no longer take profit directly. You must pay yourself through salary, dividends, or reimbursements (each of which have their own tax implications).
Corporations require ongoing maintenance, such as:
This structure provides protection and credibility but requires more organization.
The transition follows a clear sequence of steps.
Sometimes incorporating is just an added burden - for a full analysis of timing and tax implications, see: When Should I Incorporate My Business.
Select a legal name or choose a numbered corporation.
Submit incorporation documents to your provincial registry or to Corporations Canada.
This confirms the legal creation of the corporation.
These documents establish the rules for how your corporation operates.
Determine who owns the corporation and in what proportions.
You may need to transfer:
If you transfer assets like vehicles, equipment, or intellectual property into the corporation, tax rules may apply.
Two common scenarios include:
Scenario 1: Transferring a vehicle
This raises questions of taxable benefits, insurance coverage, and deductibility. See: Should I Put My Car in the Company? Pros, Cons, and Tax Considerations.
Scenario 2: Transferring assets with built-in gains
This may trigger capital gains unless you use a structured Section 85 rollover.
See: What Is a Section 85 Rollover.
Set up:
All business funds must flow through the corporation.
Notify vendors, clients, and institutions that the corporation is now the operating entity.
Moving from a sole proprietorship to a corporation is a major milestone for your business. Incorporation offers liability protection, tax planning opportunities, growth potential, and long term scalability, but also requires structure, compliance, and paperwork. This master guide connects the full picture, while the four related articles provide deeper research on timing, process, tax strategy, and asset transfers.