Should you incorporate your one-person business?
Why I did, and how.
Ok, we’re finally getting to the juicy stuff! In this post, I’ll walk you through the different business structures in Canada, and how I decided which one I wanted.
(Please see the obligatory disclaimer at the end of this post.)
Registering a business in Canada
When registering a business in Canada, you have three choices:
Sole proprietorship: the default business structure for a single owner.
General partnership: the default business structure for multiple owners.
Corporation: a separate legal entity.
I don’t plan to have any partners. So a general partnership doesn’t make sense. This leaves me with a choice between a sole proprietorship and a corporation.
Sole Proprietorship or Corporation?
When making this decision, there are several things you might want to weigh up. The big ones are legal status and complexity/cost. Let’s start with those first.
Legal status
This refers to how the business is viewed under the law. A sole proprietorship and a corporation have very different legal identities.
For a sole proprietorship, you are the business—legally speaking, there’s no separation between your personal and business finances, liabilities, or responsibilities
A corporation, on the other hand, is like its own legal person, separate from you and the other owners.
This has several benefits. One of them is that you have limited liability1, meaning if things go sideways, your personal assets are generally safe from business debts or legal trouble.
It’s also nice whenever you have to get into a contract or formal agreement with another entity. Say you’re hiring a sub-contractor, or employee, or you’re being hired by another company. The contracts and agreements are between the other entity and your company, not you personally.
This adds a layer of professionalism and protection. But it also makes things less awkward when you’re operating in a tight-knit community like quantum tech, where you know most of the people from academia or previous jobs. There are things that can be uncomfortable to negotiate with friends and acquaintances, but when it’s your company talking to their company, it creates some distance where you can frame things more rationally.
The separate legal status and liability protection was, for me, the main reason that I was interested in registering as a corporation. But is it worth the complexity and cost?
Complexity and Cost
My main hesitation about registering as a corporation was the potential complexity and cost. So I wanted to drill down and see what that involves. We can break it down into the initial process of incorporation and the ongoing responsibilities.
Process of incorporation
From talking to people in the community, I learnt that there are pretty much three ways to do this:
Use a lawyer ($2-3K)
Use a service like Ownr ($500)
Do it yourself ($200 federal or $360 provincial)
When you incorporate, there is a formal step of actually getting incorporated. This is pretty straightforward—you can do it through the Government of Canada website.
Then there is a bunch of one-off stuff you have to do just after you’re incorporated. I think the value of getting a lawyer or using Ownr is in helping with that other stuff after incorporation.
But for a one-person business, this other stuff isn’t that wild, and you can do it yourself. Essentially, it comes down to preparing and signing a document called a written resolution (in lieu of an organizational meeting) to make the by-laws, issue shares to yourself, and appoint yourself to all the officer positions. Then, you have to prepare and sign another written resolution (in lieu of the first shareholders meeting) to elect yourself as the sole shareholder and director. You can get templates for all of these documents online.
The general steps are outlined in this guide, which looks scary, but like I said, when you’re one person, it simplifies a lot. I explain how each of those steps maps to a one-person business in this post.
What about ongoing responsibilities?
Ongoing responsibilities
As an incorporated business, you’re responsible for some ongoing things.
Corporate taxes
The big ongoing cost and responsibility will be to file corporate taxes. Again, if you’re keeping good records and the company isn’t too complicated, this shouldn’t be that much more onerous than doing your taxes as a sole proprietor. While I do my personal taxes myself, for business taxes it’s probably worth getting an accountant to make sure you’re not screwing anything up. Word on the street is that this could set you back $1-1.5K per year.
Annual shareholders meeting
You’re supposed to have an annual shareholders meeting, but for a company of one, you’re not going to meet with yourself, so you just write a resolution in lieu of that meeting. You can find templates for that online too.
Keep your corporation in good standing
To keep your corporation in good standing, you have to do a few other things:
Filing an annual return: Filing an annual return for a business corporation provides up-to-date information to Corporations Canada.
Filing the ISC information: Information on the corporation's individuals with significant control (ISCs) must be filed at the same time as the annual return. Changes to ISC information must also be filed within 15 days of a change in the corporation's ISC register.
Filing a change of registered office address: Your registered office address is the official address for communications with your corporation.
Filing changes regarding directors: Interested stakeholders have a right to know who the current directors are and where they can be reached.
Amending your articles: Your articles set out basic information about your corporation.
These seem like pretty straightforward forms, and only the first one seems like a regular thing, with the others needing to be done when you make changes to the business.
What else to consider?
There are a few more things that you might want to consider when making your decision, but to me they seem less important than what I mentioned above.
Who controls things?
In general, in a sole proprietorship, the owner has total control, whereas in a corporation, control is shared between directors and shareholders. But for a single director and shareholder, the difference seems negligible.
Profits
In a sole proprietorship, all profits are paid directly to the owner, while in a corporation, profits are earned by the corporation and can be distributed to shareholders as dividends or retained within the corporation. Again, for a single director and shareholder, the difference seems negligible, since you can decide what to do with the profits.
Taxation
A sole proprietor is taxed personally on the business income as though they were employed, while a corporation pays taxes separately from its shareholders and directors. Again, for a single director and shareholder, the difference seems negligible.
Funding
I don’t plan to raise capital through the sale of shares, so that’s not really relevant. But I might want to apply for some small-business grants, or related funding, where incorporation might be important.
What did I do?
I decided to go with incorporation. For me, the big deciding factor was the separate legal status. I like the idea of having a bit of distance between myself and the business, especially when it comes to liability or formal agreements. I want to keep my personal assets out of the mix in case things go south.
The extra complexity and cost weren’t as bad as I expected. Incorporating through the Government of Canada website was actually super easy. You can probably do the whole thing in an hour or two. The next day they send you something like this:
They also send you an email with instructions for setting up your CRA business account and a few other useful links.
If you want more info about doing it yourself, the Government of Canada has this really great page that tells you everything you need to know about how incorporation works.
Summary
Hopefully this gives you enough info to decide if you want to incorporate your business of one or operate as a sole proprietor. If you’re running a side hustle or something super casual, a sole proprietorship might make more sense. But as far as I can tell, the cost and complexity of incorporation for a simple business aren’t that high. For me, the separate legal status and formality of being incorporated was worth the slightly extra hassle and cost.
And I like the sound of Aggie Inc.!
Disclaimer
The information shared in this post is based on my personal experience and is provided for informational purposes only. Incorporation processes and requirements may vary depending on your specific circumstances and jurisdiction. While I’ve done my best to share accurate and helpful insights, I encourage you to verify any steps or decisions with official resources or trusted sources to ensure they meet your needs.
I didn’t use Ownr, so I can’t make a recommendation one way or the other, but it seems to be the service that people use if they don’t want to pay a lawyer and they don’t want to do it themselves. I’m not getting anything from Ownr to mention them in this post.
In the U.S., LLCs (Limited Liability Companies) are a popular choice for entrepreneurs because they offer both limited liability protection and flexible management with less complexity than a corporation. We don’t have a true LLC equivalent in Canada, which can make the process feel more complicated here. If we want limited liability in Canada, we have to incorporate.