What is the difference between a sole proprietorship and a corporation in Ontario?

A sole proprietorship is the simplest business form: you and your business are legally the same person. All profits flow directly to your personal tax return, and you are personally responsible for every debt and lawsuit the business faces. Registering a business name under Ontario's Business Names Act gives you a name, but no separate legal entity.

A corporation, by contrast, is a distinct legal person. Corporate profits are taxed inside the corporation at corporate rates — which are often lower than personal income tax rates — and you pay yourself through salary, dividends, or a combination. If the corporation is sued or becomes insolvent, your personal assets are generally protected (subject to limited exceptions such as personal guarantees you may have signed or certain tax obligations of directors).

The trade-off is administrative cost and complexity: corporations require articles of incorporation, annual filings, minute books, separate bank accounts, and corporate tax returns. For businesses with meaningful revenue or liability risk, the protections and tax benefits typically outweigh those costs. A lawyer and accountant can help you model both options.