Sole Proprietorship, Partnership or Corporation?

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The three basic choices

Anyone starting a business in Ontario chooses, deliberately or by default, how it will be owned. Doing business alone in your own name makes you a sole proprietor. Doing business with others for profit, without incorporating, makes you partners: section 2 of Ontario’s Partnerships Act defines a partnership as the relation between persons carrying on a business in common with a view to profit. Incorporating creates a corporation, a separate legal person that owns the business. Each structure is a different set of legal rules about who owns what, who is liable for what, and what happens when an owner leaves or dies.

There is no single right answer. A freelancer testing an idea may reasonably start as a sole proprietor. Two people opening a restaurant with a lease, staff and suppliers face real debts from the first month. A business that will take on investors or be sold one day may be better suited to a corporation, which can raise money by selling shares. This page explains the legal differences so the choice is made on purpose. It supports our main corporate law page.

How each structure starts, step by step

Sole proprietorship. No filing is needed to operate in your own legal name. If you use any other name, section 2(2) of the Business Names Act requires you to register it. Registration costs $60 through the Ontario Business Registry and lasts five years (section 4(1.1)).
General partnership. The partners agree to carry on business together, ideally in writing. Section 2(3) of the Business Names Act says partners cannot carry on business or identify themselves to the public unless the firm name is registered by all of them, again for $60; section 2(4) exempts a name made up of the partners’ own names.
Limited partnership. Under the Limited Partnerships Act, a limited partnership is formed when a declaration is accepted for filing (section 3(1)); it needs at least one general partner and one limited partner (section 2(2)). The filing fee is $210, and the declaration expires after five years unless renewed (section 3(3)).
Corporation. Articles of incorporation are filed with the Ontario Business Registry for $300, and the certificate of incorporation is conclusive proof that the corporation was incorporated on the date it shows (OBCA s. 7). We walk through the process in how to incorporate a business in Ontario, and the choice of name in numbered or named company.

Ontario business structures compared
Point	Sole proprietorship	General partnership	Limited partnership	Corporation
Separate legal person?	No	No	No	Yes: the rights, powers and privileges of a natural person (OBCA s. 15)
Owners’ liability for business debts	Unlimited, personal	Each partner jointly liable for firm debts (Partnerships Act s. 10(1)); jointly and severally for wrongs (s. 13)	General partner unlimited; limited partner only to the value contributed or agreed (Limited Partnerships Act s. 9), unless taking part in control (s. 13)	Shareholders not liable as shareholders, with narrow exceptions (OBCA s. 92(1))
Who can bind the business	The owner	Every partner, for acts in the usual course of the business (Partnerships Act s. 6)	General partners (Limited Partnerships Act s. 8)	Directors and officers, under the OBCA and by-laws
Government registration	Only if using a name other than your own: $60, 5 years	Firm name: $60, 5 years	Declaration: $210, 5 years	Articles of incorporation: $300; annual return under the Corporations Information Act
On an owner’s death	The business is part of the owner’s estate	Dissolved, unless the partners agreed otherwise (Partnerships Act s. 33(1))	Depends on the partnership agreement and the Act	Continues; the shares pass through the owner’s estate
Bringing in investors	Not possible without changing structure	Admit a new partner	Admit limited partners	Issue shares

What changes the answer

Liability

Start with liability. A sole proprietor and the business are the same person in law, so the business’s debts are the owner’s debts. In a general partnership, section 10(1) of the Partnerships Act makes every partner liable jointly with the others for all the firm’s debts and obligations incurred while they are a partner, and after a partner’s death their estate remains liable for unpaid firm debts. Section 6 makes every partner an agent of the firm, so one partner’s contract in the usual course of business binds the others. A corporation is different: section 92(1) of the OBCA says shareholders are not, as shareholders, liable for the corporation’s acts or debts, apart from a few narrow statutory exceptions. Corporations Canada puts it simply: if a corporation goes bankrupt, shareholders only lose up to what they invested.

Limited liability has limits of its own. Directors can be personally liable for unpaid employee wages under section 131 of the OBCA, as we explain in directors’ duties, and a lender or landlord may ask the owners of a small corporation to sign personal guarantees.

Tax

Corporations Canada notes that corporations are taxed separately from their owners and that corporate tax rates are generally lower than personal rates. That may help a business that keeps profits in the company to grow, and may matter less when every dollar is paid out to the owners. The tax side should be modelled with your accountant before you decide; the legal structure and the tax plan have to fit together, especially if a holding company is part of the picture.

Two or more owners

Without an agreement, section 24 of the Partnerships Act says partners share capital and profits equally and contribute equally to losses, whatever each actually put in. In a corporation, ownership follows the shares each person holds, and a shareholders’ agreement sets the rules for decisions, exits and disputes. Either way, two or more owners should have a written agreement.

Continuity and succession

Section 33(1) of the Partnerships Act dissolves a partnership on the death or insolvency of a partner, unless the partners agreed otherwise. Corporations Canada notes that a corporation continues until it winds up, amalgamates or gives up its charter, while other structures stop when the owner dies. For a business you hope to pass on or sell, a corporation can give a cleaner path, which we discuss in estate planning for owners of an Ontario corporation.

Professional practices

A limited liability partnership is a special form. Section 44.2 of the Partnerships Act allows it to carry on business in Ontario only to practise a profession governed by an Act that expressly permits it. Most businesses cannot use it.

Ontario or federal

If you incorporate, you also choose between Ontario’s Business Corporations Act and the federal Canada Business Corporations Act. We compare them in Ontario or federal incorporation.

Example

For example, imagine Sam and Lina plan to open a bubble tea shop in Markham. They will sign a five-year lease, hire four staff and buy equipment on credit. Lina is putting in most of the start-up money; Sam will run the shop day to day.

If they simply start trading under a shop name, they are a general partnership. They would have to register the firm name under the Business Names Act, each would be personally liable for the lease and supplier debts, and without a written agreement section 24 of the Partnerships Act would split profits equally, even though Lina contributed more. If Lina died, the partnership would dissolve unless their agreement said otherwise.

Instead they incorporate an Ontario corporation, issue shares in proportion to what each contributes, and sign a shareholders’ agreement covering decisions, salaries and what happens if one wants out. The landlord still asks for personal guarantees on the lease, which they negotiate, but the supplier and day-to-day debts sit with the corporation. Their accountant sets up how they will be paid. This example is hypothetical and is not legal advice.

Common mistakes when choosing a structure

Becoming partners by accident. Carrying on business together for profit can create a partnership, whether or not anyone signed anything.
Trading under an unregistered name. Under section 7 of the Business Names Act, an unregistered business cannot sue in Ontario in connection with that business without the court’s leave, and section 10 sets fines of up to $2,000 for an individual and $25,000 for a corporation.
Assuming a corporation protects against everything. Personal guarantees and directors’ liability for unpaid wages can still reach the individuals.
Splitting ownership without an agreement. The statutory defaults may not match what the owners intended.
Letting a registration lapse. Business name registrations and limited partnership declarations expire after five years.
Choosing on tax alone. Liability, partners and exit plans matter as much as the tax rate.

What to do this week

Write down who the owners will be and what each will contribute.
List the debts the business will take on in its first year: lease, loans, suppliers, staff.
Decide whether you want to keep profits in the business or pay them out.
Ask your accountant to compare the tax result of each structure for your numbers.
If you are already trading under a name, check it is registered.
Bring your notes to a first consultation, with the items in our corporate consultation checklist. A first consultation takes 30 minutes, by video or in person, and you can request one here.

Frequently asked questions

Can I start as a sole proprietor and incorporate later?

Yes. The business’s assets and contracts then have to be moved into the new corporation, which can have tax consequences your accountant should plan.

Do I need to register my own name?

No. Section 2(2) of the Business Names Act only requires registration if you carry on business under a name other than your own.

Is a limited partnership a good way to protect my investment?

A limited partner’s liability is limited to what they contribute, but section 13 of the Limited Partnerships Act removes that protection if the limited partner takes part in control of the business. There must always be at least one general partner with unlimited liability (section 2(2)), and that partner can be a corporation.

How much does each structure cost to register in Ontario?

The Ontario Business Registry charges $60 to register a business name or a partnership’s firm name, $210 to file a limited partnership declaration, and $300 to incorporate. Professional fees are separate.

Can a corporation have just one owner?

Yes. Section 115(2) of the OBCA requires a corporation that is not an offering corporation to have at least one director, and one person can be both the only shareholder and the only director.

Does a corporation have to file more paperwork?

Yes. It keeps a minute book and registers and files annual returns, which we explain in annual filings for an Ontario corporation and the corporate minute book.

Sources

This page is general information about Ontario law, not legal advice for your situation. It reflects the law as of November 9, 2026.

Sole proprietorship, partnership or corporation: which suits an Ontario business?