Business Structures in Canada: Sole Proprietorship, Partnership, or Incorporation?

When launching your business in Canada, one of the most important decisions is choosing the right business structure. For newcomers, the most common paths are Sole Proprietorship, Partnership, and Incorporation. Let’s compare them:

Sole Proprietorship

• Simple and inexpensive to register

• Personal liability: you are legally responsible for debts

• Profits taxed as personal income

• Good for testing a business idea with minimal overhead

Partnership

• Designed for two or more people starting a business together

• Easy to set up, with shared responsibilities and profits

• Each partner is personally liable (unless it's a Limited Partnership)

• Strongly recommended to have a written Partnership Agreement

Incorporation

• Separate legal entity: better protection of personal assets

• More credibility with clients and banks

• Eligible for small business tax benefits

• Higher setup costs and more administrative work

Key Considerations:

Feature Sole Proprietorship Partnership Incorporation

Legal liability You are liable Shared liability* Limited liability

Taxation Personal income Personal income (shared) Corporate tax

Cost to start Low Low to medium Medium to high

Maintenance Low Low to moderate Moderate (filings, records)

*In General Partnerships, each partner is personally liable. Limited Partnerships offer partial protection.

Which One Should You Choose?

• If you’re testing a small idea alone: Sole Proprietorship may be the best fit.

• If you’re starting with a partner: Partnership allows you to collaborate while sharing risk and responsibility.

• If you plan to grow, attract investors, or protect your personal assets: Incorporation is likely the smarter path.

• At NexStep, we help entrepreneurs evaluate and register both structures in British Columbia and across Canada.