How does my personal liability differ between a sole prop and a corporation?

As a sole proprietor, your personal liability is unlimited. If a client sues your business and wins a judgment larger than your business assets, they can pursue your personal bank accounts, car, investments, and — in some cases — your home. There is no legal wall between you and the business.

A corporation creates a separate legal entity that is responsible for its own debts and obligations. Assuming the corporation is properly maintained and you have not personally guaranteed a debt or committed a wrongful act, a successful lawsuit against the corporation generally cannot reach your personal assets. This is the corporate veil.

However, the shield has limits. Directors of Ontario corporations can be personally liable for unpaid wages and unremitted source deductions (payroll taxes and HST). Courts can also "pierce the corporate veil" in cases of fraud, misrepresentation, or when the corporation is used as an alter ego rather than a genuine separate entity. Personal guarantees — commonly required by landlords and banks — eliminate the protection for those specific obligations.