How to Incorporate a Sole Proprietorship in Canada

Thinking about growing your business? If you’ve been operating as a sole proprietor, it might be time to take the next step and incorporate your business. Many business owners in Canada reach a point where they want more protection, better tax options, and room to expand. That’s when they decide to expand from a sole proprietorship to a corporation.

Incorporation means you’ll form a corporation, a brand-new legal entity that’s separate from you. This move helps you establish a new business entity that can outlast you, raise capital, and limit your personal liability. It also signals that your business is official, registered, and recognized by the Government of Canada.

Key Takeaways

• Shifting from a sole proprietorship to a corporation helps protect your assets, reduces risks, and allows for growth.
• The incorporation process requires you to register a corporation, transfer assets, and set up new compliance systems.
• With a corporation, you’ll need to take on more responsibilities, including managing bookkeeping, tracking resolutions, adopting bylaws, and filing annual reports.

7 Steps to Switch from Sole Proprietor to Corporation in Canada

To make things clear, you cannot convert a sole proprietorship into a corporation, as it is an entirely different business structure. Since a corporation is a new legal entity, you will need to incorporate from scratch.

• Step 1: Choose a corporate name or use a numbered company. Search if the name is taken via Nuans® or Canada’s business registries.
• Step 2: Apply for incorporation through Corporations Canada’s Online Filing Centre if you’re registering at the federal level to get your articles of incorporation. For provincial/territorial incorporations, visit your province/territory government registrar.
• Step 3: Automatically receive your new business number (BN) and corporation income tax program account from the Canada Revenue Agency (CRA). 
• Step 4: Transfer assets to your new corporation. Contact 1-800-959-5525 to register your GST/HST (RT) program account or payroll (RP) program account with your new BN. Please note that this may have tax implications. A Section 85 rollover (Income Tax Act) may be used to defer taxes on transfers. 
• Step 5: Close down your old BN and all CRA programs associated with your old business number if you won’t be using them anymore.
• Step 6: Reapply for any necessary business licenses and permits under the new corporate name.
• Step 7: Set up proper bookkeeping and accounting practices for the new corporate structure. Be ready to track corporate resolutions, adopt corporate bylaws, and handle annual filings.

If you’re from Newfoundland and Labrador, Northwest Territories, Nunavut, Quebec, or Yukon, you will have to register for a BN manually via Business Registration Online (BRO) or call 1-800-959-5525 for assistance.

Why Incorporate a Sole Proprietorship

Transition from sole proprietorship to corporation in Canada means gaining stronger protection, better tax options, and more opportunities to grow.

Here’s why many Canadians apply for corporate registration:

• Increased liability protection: Separate business debts from personal finances.
• Tax advantages: Access reduced corporate tax rates and deferrals.
• Access to funding: Attract investors and qualify for business loans.
• Credibility and growth: Build trust with clients, partners, and stakeholders.

Read more: Sole proprietorship vs. corporation

Key Considerations When Incorporating a Sole Proprietorship

Switching to a corporation brings added responsibilities. Before you change business structure, keep these in mind:

• Cost: Incorporation has higher upfront fees and ongoing compliance costs.
• Ongoing compliance: You’re required to file annual returns, have corporate resolutions, and maintain a minute book.
• Personal liability: While protection is stronger, directors may still have some legal responsibilities.
• Employee considerations: Hiring staff as a corporation requires more formal HR practices.
• Tax obligations: You’ll file separate corporate tax returns, which may be more complex.

Depending on where you incorporate, there may also be residency requirements for directors. In some jurisdictions, at least one or a certain percentage of directors must be Canadian residents. Learn more about the Canadian resident requirement for corporations.

How Ownr Simplifies the Process of Incorporating a Sole Proprietorship in Canada

Overwhelmed with the process of moving from a sole proprietorship to a corporation? Don’t worry, Ownr is here to help you register your business with the government. Our aim is to make this tedious registration process quick and easy.

If you already have an Ownr account for your sole proprietorship, here’s everything you need to know: Switch from a sole proprietorship to an incorporation with Ownr.

Frequently Asked Questions

Can I keep the same business name when I incorporate my sole proprietorship?

Yes, you can usually keep the same business name when you incorporate your sole proprietorship, but only if the name is available. You may need a NUANS® report to confirm availability.

How long does it take to incorporate a sole proprietorship in Canada?

Switching to a corporation in Canada typically takes 1 business day and costs about $200 if done online. You can also speed up the process for an additional $100 express service fee, but not every province offers this. Paper applications may take longer than virtual applications, and timing will vary by province. 

Do I need a lawyer to incorporate my sole proprietorship?

No, you are not legally required to hire a lawyer to incorporate your sole proprietorship in Canada, as incorporation can be done yourself through federal or provincial processes. Using a platform like Ownr can also help you complete incorporation online, saving both time and legal fees.

Can a Sole Proprietorship Be Incorporated?

No, a sole proprietorship cannot be “incorporated” because incorporation is the process of becoming a separate legal entity, which is the opposite of a sole proprietorship, where the owner and business are legally the same. 

Instead, a sole proprietor can choose to switch their business structure from a sole proprietorship to a corporation by registering for a new corporation from scratch and closing the sole proprietorship if not needed.