Should You Incorporate Your Business in Ontario? Costs, Benefits, and Case Examples

Deciding whether or not to incorporate your business is a foundational step in shaping how you operate, pay taxes, raise capital, and manage risk as a business owner in Canada.

For Ontario entrepreneurs, the decision is especially important, not only because incorporation changes your legal and tax responsibilities, but because there are now more affordable, streamlined ways to do it than ever before.

This guide is designed to help you determine whether incorporation makes sense for your business right now. We’ll walk through the key benefits and drawbacks, show real-world examples based on business types and revenue stages, and break down what incorporation actually costs in Ontario.

If you’ve already decided to incorporate and want the simplest path forward, Venn now offers Canada’s first tool that lets you incorporate your business and open a business account in one step, with no service fee and up to $350 in bonus value. You can learn more and get started here.

But whether you’re ready or still weighing the pros and cons, this article will help you make a more informed decision. Let’s dive in together to uncover all things related to incorporations.

What Does It Mean to Incorporate a Business in Ontario?

Incorporating a business in Ontario means creating a separate legal entity for your business under provincial or federal law. Instead of operating as a sole proprietorship or general partnership, incorporation gives your business a distinct identity, with its own rights and responsibilities.

What happens when you incorporate?

When you incorporate, your business becomes a corporation. It can:

• Own property
• Sign contracts
• Incur debt
• Pay taxes
• Be held liable for legal actions

Most importantly, the corporation is responsible for its own debts and obligations. As the business owner, your personal assets are typically protected from business liabilities.

This structure offers a key advantage over sole proprietorships, where the owner and the business are legally the same.

Should I Incorporate Provincially vs. Federally in Canada

In Canada, you can choose to incorporate your business:

• Provincially, through the Ontario government
• Federally, through Corporations Canada

Both options create a legal corporation, but they differ in:

• Where you can operate under your business name
• Filing requirements
• Cost and complexity

For most small businesses focused on operating in Ontario, provincial incorporation is simpler and less expensive. However, if you plan to operate across multiple provinces or under the same name nationwide, federal incorporation may be worth considering.

Why Incorporation Matters

Incorporation can affect:

• How you're taxed
• Your ability to raise investment
• Liability protection
• Future sale of the business
• Access to corporate tax strategies

It also opens up practical benefits, like the ability to open a business account in the company’s name. For example, Venn offers an incorporation tool that combines the registration and account setup process, so your new corporation is ready to operate immediately.

Key Benefits of Incorporating in Ontario

There’s no single reason to incorporate, and for many founders, the decision comes down to a combination of tax planning, long-term growth strategy, and risk management. That said, the benefits of incorporation are well-documented, and in the right situation, can meaningfully reduce personal exposure and increase financial flexibility.

Below are some of the main advantages of incorporating in Ontario, with real examples to help you see how it plays out depending on the kind of business you’re running.

Limited Liability Protection

The most commonly cited reason to incorporate is liability protection. When your business is structured as a corporation, it's treated as a separate legal person. That means if your business gets sued or defaults on a debt, your personal assets (home, savings, vehicle) are generally off-limits.

Let’s say you're a consultant running your business as a sole proprietorship. If a client takes legal action over a contract dispute, you could be held personally responsible. But if you were operating through a corporation, only the assets held by the business would typically be at risk.

That layer of separation matters more in certain industries, like construction, wellness services, or food delivery, where risk exposure is higher. If you're operating in a field with customer-facing liability, incorporation is often recommended by legal advisors.

That said, limited liability doesn’t mean no liability. Directors can still be held personally responsible for things like unpaid taxes, employee wages, or if you personally guarantee a loan. It’s better protection for yourself, not total immunity.

Tax Deferral and Planning Flexibility

One of the biggest financial advantages of incorporating in Ontario is tax deferral, the ability to leave profits in the business and pay a lower corporate tax rate on that income until you need to withdraw it personally.

In Canada, small businesses that qualify for the Small Business Deduction (SBD) pay a much lower corporate tax rate, typically around 12 to 15 percent depending on the province. By contrast, personal tax rates can quickly hit 30 to 50 percent once your income rises above modest thresholds.

Example:

Imagine your incorporated business earns $150,000 this year. But you only need $80,000 for your living expenses. Instead of paying personal tax on the full $150,000, you could:

• Pay yourself $80,000 through salary or dividends
• Leave the rest in the corporation
• Defer personal tax on the remaining $70,000

That $70,000 can now be used to reinvest in your business, buy inventory, hire staff, or build a cash reserve, all at a lower tax cost.

This flexibility to control the timing and amount of income you take home becomes more valuable as your business grows or your income becomes less predictable.

Lifetime Capital Gains Exemption (LCGE)

If you’re building your business with the intention to eventually sell it, or just want that option on the table, incorporating can open the door to one of the most generous tax breaks available to Canadian entrepreneurs: the Lifetime Capital Gains Exemption (LCGE).

The LCGE allows owners of qualifying Canadian Controlled Private Corporations (CCPCs) to sell shares of their business and shelter up to $1,250,000 in capital gains from tax (as of 2024, indexed annually).

Example:

Let’s say Priya starts a consulting firm and incorporates early. Ten years later, she sells the company for $950,000. Because she meets the LCGE requirements, that gain could be entirely tax-free.

If she had operated as a sole proprietor or structured the sale improperly, she’d be on the hook for six figures in capital gains tax.

What are the conditions to qualify?

To use the LCGE, your corporation must:

• Be a Canadian-controlled private corporation (CCPC)
• Use at least 90% of its assets in active business at the time of sale
• Have used at least 50% of its assets in active business for the 24 months prior
• Have shares held for at least 24 months by the seller

If you're aiming to sell one day, especially in tech, services, or professional practices, structuring your business to qualify for the LCGE can result in major long-term savings.

“What is the Lifetime Capital Gains Exemption in Canada?”

The LCGE lets Canadian business owners sell shares of a qualifying corporation and exempt up to $1,250,000 in capital gains from tax, if certain criteria are met.

Estate and Succession Planning

Incorporation isn’t just about how you operate today, it also affects what happens to your business when you’re no longer running it.

Because a corporation is a separate legal entity, it continues to exist even if the original owner retires, passes away, or steps back from day-to-day operations. That gives incorporated businesses a structural advantage when it comes to estate planning and succession.

With a sole proprietorship, the business typically ends when the owner does. But with a corporation, shares can be transferred to heirs, co-founders, or buyers, and the business can keep operating without interruption.

This continuity can be especially important if:

• You want to pass the business on to your children or family
• You’re planning to bring on future partners or investors
• You want to set up a tax-efficient exit

There are also potential tax planning opportunities tied to shares, trusts, and corporate assets that simply aren’t available in unincorporated structures. While those strategies are best explored with a tax advisor, they typically require the business to be incorporated well in advance.

Raising Capital and Investor Readiness

If you plan to raise outside capital, whether from angel investors, venture capitalists, or even through a friends-and-family round, incorporation isn’t optional. It’s a prerequisite.

Investors don’t write cheques to sole proprietors. They buy shares, take equity stakes, and want formal governance structures. That means they need a corporation, with share classes, ownership percentages, and the legal protections that come with it.

Incorporation signals you’re serious

For early-stage founders, incorporation is often one of the first steps that signals legitimacy. It shows you're thinking long-term, building something worth investing in, and understand the legal structure required to scale.

Even if you're not planning to raise right now, incorporating early:

• Makes you more fundable later
• Gives you flexibility to issue shares or options
• Helps establish clean ownership history

For solo founders who anticipate future co-founders or advisors, a corporation also makes it easier to bring them in with equity,  without having to rebuild your structure from scratch.

“Do I need to incorporate to raise investment?”

Yes. Investors require a corporation in order to buy shares and participate in formal ownership. Sole proprietorships can't issue equity or offer legal ownership structures for outside funding.

When Shouldn’t You Incorporate a Business in Canada?

Incorporation isn’t one-size-fits-all. While it offers important benefits like limited liability and tax planning flexibility, there are many common business scenarios where incorporating could create unnecessary cost and complexity.

If you’re asking questions like:

• “Should I incorporate if I’m just getting started?”
• “Is incorporation worth it if I’m not making much yet?”
• “Can I write off losses if I incorporate?”

Then this section is for you.

Should You Incorporate If You Earn Under $100K?

Many Canadian small business owners assume incorporation is the default next step once they start earning revenue, but that’s not always true.

If your business earns less than $100,000 in annual net income, and you’re withdrawing most (or all) of that income for personal use, you likely won’t benefit from tax deferral, one of the main advantages of a corporate structure.

In fact, you may end up paying more when you factor in:

• Annual incorporation fees
• Corporate tax filing costs
• Legal and bookkeeping overhead
• Additional compliance requirements

At this stage, a sole proprietorship may offer the best blend of tax simplicity and low administrative burden. Once your income exceeds your personal spending needs, or you're ready to reinvest profits or raise funding, then incorporation starts to make more sense.

What Happens If You Incorporate While Losing Money?

Startups often take a year or two before reaching profitability. During those early years, operating at a loss as a sole proprietor lets you deduct business losses against your personal income, which can significantly lower your tax bill.

If you incorporate too soon, those same losses get locked inside the corporation and can only be used to reduce future corporate income. You lose the immediate personal tax benefit.

This is especially relevant for founders who are bootstrapping while working a job or running multiple income streams. Incorporating too early can delay valuable tax relief, and add legal fees at a time when you’re trying to conserve cash.

Should You Incorporate If You’re a Solo Operator?

If you’re a one-person business and you’re not planning to scale, raise funding, or sell the company down the road, incorporation may offer limited benefits.

Yes, you’ll get limited liability, but you’ll also take on:

• A separate corporate tax return
• Minute book maintenance
• Legal and filing obligations
• More complex bookkeeping

And if your business income is stable and fully withdrawn as personal income, you won’t benefit from tax deferral either.

There are exceptions, such as working in high-liability industries or with large corporate clients who prefer vendors to be incorporated, but for many solo professionals, staying unincorporated makes business simpler.

Key takeaways: Pro and Cons of Incorporating in Ontario

‍

Case-Based Incorporation Scenarios

Should I incorporate if I plan to raise investment?

Yes, if raising capital is part of your plan, you’ll need to incorporate. Investors expect to receive equity in exchange for funding. That requires share classes, ownership records, and a legal structure only a corporation provides. Even if you're bootstrapping now, incorporating early can help you avoid restructuring complications later when it's time to bring on partners or investors.

Best for: Tech startups, product companies, anyone seeking angel or VC funding.

Is it better to incorporate if I'm building a business to sell?

Absolutely. If you anticipate selling your business, incorporation opens access to the Lifetime Capital Gains Exemption (LCGE), up to $1,250,000 in tax-free capital gains on the sale of qualified shares in a Canadian Controlled Private Corporation (CCPC). That’s a massive tax planning opportunity sole proprietors don’t get.

Best for: Consultants, agencies, and growing operations that may be acquired.

When does liability protection make incorporation essential?

If your business carries any financial, legal, or operational risk, incorporation gives you a legal shield. It separates your personal finances from the business. So if something goes wrong, your house and savings aren't on the line.

Common examples: trades, e-commerce, services that involve contracts or physical products, or hiring employees.

Note: Some liabilities (like unpaid GST or payroll remittances) can still fall on directors, so this isn't a total escape hatch.

Does incorporation make sense if I plan to reinvest profits?

Yes, this is where tax deferral kicks in. If you’re earning more than you need for personal income and plan to leave funds in the business (to buy equipment, expand operations, or invest in marketing), the lower corporate tax rate helps you retain more capital to reinvest.

Best for: Entrepreneurs prioritizing growth over near-term salary.

What if I want to pay myself instead of growing the business?

In that case, you may not see a major tax benefit from incorporating, especially if your business earns under $100,000. If all profits are withdrawn as personal income, you're still paying similar personal tax rates plus the cost of incorporation and upkeep.

For solo operators or service providers pulling out all revenue as salary, staying unincorporated could make more financial sense.

Best for: Freelancers, lifestyle businesses, or first-year entrepreneurs validating an idea.

What Are the Costs of Incorporating in Ontario?

Incorporating your business in Ontario doesn’t have to break the bank, but there are upfront and ongoing costs you should understand before making the leap. Here's a breakdown by incorporation method.

How much does it cost to incorporate a business in Ontario?

‍

What are the ongoing costs of running a corporation in Ontario?

‍

How Do You Incorporate a Business in Ontario?

If you're ready to incorporate your business in Ontario, here’s exactly what to expect. This is the process whether you're using a DIY method, a legal professional, or Venn’s streamlined online tool.

Step 1: Decide Between Federal or Provincial Incorporation

• Federal incorporation gives you name protection across Canada, but you'll still need to register provincially to operate in Ontario.
  
• Provincial incorporation (via Ontario Business Registry or platforms like Venn) is simpler if you're only planning to do business in Ontario.
  

Tip: Venn currently supports provincial incorporation in Ontario, no lawyer needed and no platform fee.

Step 2: Choose a Business Name

You have two options:

• Numbered company (e.g., 12345678 Ontario Inc.) - faster, and you can register a separate operating name later.
  
• Named corporation - must be unique and approved by the province. Consider doing a NUANS name search ($13.80 CAD) if you're incorporating outside of the Venn workflow.

Step 3: Select Your Incorporation Method

‍

Step 4: Determine Your Share Structure

You’ll need to decide:

• Number of shares
• Share classes (voting, non-voting)
• Rights attached to each class

Step 5: Submit Your Articles of Incorporation

This is the official paperwork that creates your business as a legal entity. In Venn, this happens automatically once you complete the guided flow. If you're doing this yourself, you'll need to manually file with the Ontario Business Registry.

Step 6: Set Up Your Corporate Records

After incorporation, you’re legally required to:

• Maintain a minute book (records of resolutions, ownership, meetings)
• Designate directors and officers
• Record issued shares
  

Step 7: Open a Business Account

Corporations must keep their finances separate from personal accounts. Venn simplifies this with an instant multi-currency account setup right after you incorporate, no need to visit a branch.

Learn more about what to expect after you've incorporated in Ontario here.

So, Should You Incorporate, and Why Use Venn?

Incorporating a business in Ontario can be a smart move, but only when it aligns with your revenue, risk, and long-term goals. 

While sole proprietorships can keep costs and complexity low, incorporation opens doors to:

• Lower effective tax rates (when you’re earning more than you need)
• Liability protection
• Future fundraising
• Lifetime capital gains exemption
• Stronger brand credibility

That said, many entrepreneurs get stuck at the “how” part, unsure about whether to DIY, use a platform, or hire a lawyer.

That’s where Venn makes it easy.

Venn offers the only platform in Canada that lets you incorporate and open a fully functional business account in a single online flow. There’s:

• No service fee
• $350 in cash bonuses
• And no need to jump between government forms, bank branches, or legal consultations

Incorporate and get banking-ready in minutes, with your business set up the right way, from day one.

Start your business today with Venn.

‍

Frequently Asked Questions About Incorporating in Ontario

How much does it cost to incorporate a business in Ontario?

Expect to pay between $300 and $400 in government fees. Using a lawyer can push total costs to over $1,000. Venn charges no additional service fee and includes bonus incentives.

Can I incorporate my business and open a business account at the same time?

Yes. Venn is the only tool in Canada that lets you do both in one online process.

Should I incorporate if I make under $100,000?

Not necessarily. If you withdraw all your business income for personal use, incorporation may not offer significant tax advantages. It becomes more useful when you're reinvesting or retaining earnings.

What’s the difference between federal and provincial incorporation?

Federal incorporation provides name protection across Canada but still requires provincial registration. Provincial incorporation, such as in Ontario, is simpler and sufficient for most businesses operating within one province.

Do I need a lawyer to incorporate?

No. You can incorporate directly through Ontario.ca or use a service like Venn to simplify the process. Legal support is only necessary for complex share structures or multi-partner setups.

Can I incorporate my business myself?

Yes, but it involves multiple steps through the government portal. If you want a faster, cleaner experience that includes a corporate account, Venn is a better fit.

What are the tax benefits of incorporating?

Corporations can access lower tax rates, defer income tax, and qualify for the lifetime capital gains exemption on sale. The benefits are most valuable when you're earning more than you need personally or planning to sell.

_{This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Venn Software Inc or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional. We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.}

‍