Business Structure Comparison
| Feature | Sole Proprietorship | Partnership | Corporation | Cooperative |
|---|---|---|---|---|
| Legal status | Not separate from owner | Not separate | Separate legal entity | Separate legal entity |
| Liability | Unlimited personal | Unlimited personal (joint) | Limited to investment | Limited to investment |
| Setup cost | $60–$100 | $60–$100 + agreement | $200–$3,500 | $200–$2,000 |
| Annual maintenance | Low ($200–$800) | Low ($300–$1,000) | Moderate ($1,000–$5,000) | Moderate ($500–$3,000) |
| Taxation | Personal tax rate | Personal tax rate (each partner) | Corporate rate (9–12.2% on first $500K) | Corporate rate |
| Tax flexibility | Limited | Moderate | High (salary/dividend mix) | Moderate |
| Raising capital | Difficult | Moderate | Easiest (shares) | Member contributions |
| Ownership transfer | Difficult | Moderate | Easy (sell shares) | Member-based |
| Number of owners | 1 | 2+ | 1+ (shareholders) | 3+ (members) |
| Decision-making | Owner decides | Partners decide | Directors/shareholders | Democratic (1 member = 1 vote) |
Tax Comparison ($100,000 Business Profit)
| Structure | Tax Rate | Tax Paid | After-Tax Income | Annual Savings vs Personal |
|---|---|---|---|---|
| Sole proprietorship (ON) | ~33% (marginal) | ~$33,000 | ~$67,000 | Baseline |
| Partnership (ON, 50/50 split) | ~25% each (on $50K) | ~$25,000 total | ~$75,000 total | ~$8,000 |
| Corporation (small biz, ON) | 12.2% combined | ~$12,200 | ~$87,800 (retained) | ~$20,800 deferred |
| Corporation + salary ($60K) | Mixed | ~$22,000 total | ~$78,000 | ~$11,000 |
| Corporation + dividend ($60K) | Mixed (integration) | ~$21,000 total | ~$79,000 | ~$12,000 |
Corporate tax savings are deferred, not eliminated. When dividends are eventually paid out, additional personal tax applies. The benefit is timing and investment growth inside the corporation.
Small Business Tax Rate by Province
| Province | Federal Rate | Provincial Rate | Combined Rate |
|---|---|---|---|
| Alberta | 9.0% | 2.0% | 11.0% |
| British Columbia | 9.0% | 2.0% | 11.0% |
| Ontario | 9.0% | 3.2% | 12.2% |
| Saskatchewan | 9.0% | 1.0% | 10.0% |
| Manitoba | 9.0% | 0.0% | 9.0% |
| Quebec | 9.0% | 3.2% | 12.2% |
| Nova Scotia | 9.0% | 2.5% | 11.5% |
| New Brunswick | 9.0% | 2.5% | 11.5% |
| PEI | 9.0% | 1.0% | 10.0% |
| Newfoundland | 9.0% | 3.0% | 12.0% |
Applies to the first $500,000 of active business income for Canadian-Controlled Private Corporations (CCPCs).
Partnership Types
| Type | Liability | When to Use | Registration |
|---|---|---|---|
| General partnership | All partners jointly and severally liable | Small businesses with trusted partners | Provincial registration |
| Limited partnership | General partner(s) fully liable, limited partners liable to investment | Real estate, investment projects | Provincial registration |
| Limited liability partnership (LLP) | Partners liable for own acts only, not other partners | Professional firms (law, accounting) | Provincial registration + professional regulator |
When to Choose Each Structure
| Scenario | Best Structure | Why |
|---|---|---|
| Freelancer, under $50K profit | Sole proprietorship | Simplest, cheapest, minimal paperwork |
| Side hustle, testing a business idea | Sole proprietorship | Easy to start and shut down |
| Two friends starting a business | Partnership → incorporate later | Simple start, then grow |
| Business profit over $75K | Corporation | Tax deferral, liability protection |
| Professional (doctor, lawyer, accountant) | Professional corporation | Tax planning + regulatory compliance |
| Real estate investing (group) | Limited partnership or corporation | Liability protection, investor structure |
| Community project | Cooperative | Democratic control, shared benefits |
| High-liability business (construction) | Corporation | Protect personal assets |
| Planning to sell the business | Corporation | LCGE on sale ($1,016,836 in 2025) |
| E-commerce / online business | Sole prop → incorporate at scale | Start simple, grow as needed |
Annual Compliance Requirements
| Requirement | Sole Prop | Partnership | Corporation |
|---|---|---|---|
| Tax return | T1 + T2125 | T1 + T5013 (each partner) | T2 corporate + T1 personal |
| Filing deadline | June 15 (taxes due April 30) | June 15 | 6 months after year-end |
| GST/HST filing | If revenue > $30K | If revenue > $30K | If revenue > $30K |
| Annual corporate return | N/A | N/A | Federal ($12) + provincial ($0–$40) |
| Financial statements | Not required | Not required | Required (can be compilations) |
| Payroll (if employees) | T4s by Feb 28 | T4s by Feb 28 | T4s by Feb 28 |
| Accounting cost | $200–$800/year | $400–$1,200/year | $1,000–$5,000/year |
| Total annual cost | $200–$1,000 | $400–$1,500 | $1,500–$6,000 |