Many entrepreneurs in Ontario start small — often as sole proprietors — because it’s simple and affordable. But as your business grows, you’ll eventually face the big question: “Should I incorporate?”
Incorporating a business in Ontario isn’t just a paperwork exercise; it’s a major legal and financial decision. Incorporation can protect your personal assets, unlock tax benefits, and give your business more credibility. But it also introduces new obligations, filings, and structures you need to understand before making the leap.
This post walks you through everything: what incorporation means under Ontario law, the legal and tax benefits, how to do it step by step, and why partnering with a business lawyer can make all the difference.
What Does It Mean to Incorporate in Ontario?
When you incorporate a business in Ontario, you create a separate legal entity. This means your company exists independently from you as the owner. Under Ontario’s Business Corporations Act (OBCA), an incorporated company has many of the same rights as a person — it can own property, enter into contracts, borrow money, and even sue or be sued.
Key Features of Incorporation:
- Separate legal identity: Your business is legally distinct from you.
- Limited liability: Your personal assets are protected from most business debts and lawsuits.
- Perpetual existence: The corporation continues even if ownership changes.
Source: Ontario Business Corporations Act
Legal Benefits of Incorporation
- Limited Liability: Your personal assets are shielded from business debts or lawsuits.
- Separate Legal Structure: Banks, clients, and suppliers view a corporation as more stable and reputable.
- Perpetual Existence: The corporation continues even if ownership changes or the founder steps down.
These protections rank high among the business incorporation benefits in Ontario.
Tax Benefits of Incorporation
Lower Corporate Tax Rates
- Small Business Deduction (SBD): CCPCs in Ontario get a 3.2% provincial tax rate on the first $500K of active business income, instead of 11.5% .
- Combined with the federal 9% rate, corporations can pay just 12.2% total tax, versus much higher personal tax rates .
Example:
An Ontario CCPC earning $600K pays:
- 12.2% on first $500K = $61,000
- 26.5% on remaining $100K = $26,500
- Total tax = $87,500
Tax Planning Opportunities
- Income Splitting: Dividend income can be spread among family members who are shareholders (within CRA rules).
- Deferred Tax: You can leave profits inside your corporation (taxed at a low rate) rather than withdrawing and paying high personal taxes.
Incorporation vs Sole Proprietorship / Partnership
| Feature | Sole Proprietorship / Partnership | Incorporation |
| Liability | Unlimited — personal assets at risk | Limited — Corporation’s liability only |
| Tax Rate | Personal rates up to ~53% | Lower corporate + deferral opportunities |
| Setup Cost | Low | $300–$360 (corporation) + ongoing fees |
| Credibility | Informal, limited trust | More professional, better at working with lenders |
| Longevity | Ends with owner | Continues beyond original owners |
The Incorporation Process in Ontario
Here’s a step-by-step breakdown of incorporating under OBCA:
- NUANS Name Search
Secure your business name, or choose a numbered company; maintain that report in your registered office . - File Articles of Incorporation
Submit via the Ontario Business Registry for $300–$360 . - Appoint Directors & Shareholders
Assign roles and structure your share distribution according to your goals. - Set a Registered Office
Must be a physical Ontario address—not a PO box. - Register for Tax IDs
Apply for a Business Number with CRA for HST, payroll, and corporate taxes. - Draft a Shareholders’ Agreement
It helps govern decision-making, ownership transfers, and exit plans.
Why Work With an Ontario Incorporation Lawyer?
- Ensures legal compliance with OBCA
- Helps structure your business correctly for tax and growth
- Drafts vital documents like shareholders’ agreements
- Prevents costly filing errors or legal disputes
- Strengthens long-term planning and exit strategies
Learn more about our business law services.
Common Mistakes to Avoid
- Attempting DIY incorporation without legal guidance
- Skipping tax registrations leading to penalties
- Failing to create a shareholders’ agreement
- Ignoring corporate record-keeping requirements
FAQs
How much does it cost to incorporate?
- Typically between $300–$360, paid to the Ontario government .
Do I need a lawyer?
- It’s not legally required, but working with a lawyer ensures accuracy, saves time, and reduces risk.
Can I incorporate federally instead of provincially?
- Yes. Federal incorporation offers name protection across Canada but may require extra-provincial registration to operate in Ontario .
Incorporating a business in Ontario offers legal protection, tax savings, and enhanced credibility—but only if done carefully and correctly. If you’re exploring incorporation or already running a small business in Ontario or Ottawa, J. Solomon Law can help ensure the process is smooth, strategic, and customized to your goals.
Contact us today to schedule your incorporation consultation and build a stronger future for your business.
Disclaimer
This article is for general informational purposes only and does not constitute legal advice. Please consult a qualified Ontario business lawyer for advice tailored to your specific circumstances.