Canada.ca lists three kinds of business to register: a sole proprietorship or partnership, a corporation (federal or provincial/territorial) and a co-operative. They differ in who owns the business, who is liable for its debts and how its income is taxed. This page compares them; should you incorporate your side hustle? goes deeper on the sole proprietorship vs corporation decision, and the self-employed taxes hub covers taxes while you’re unincorporated.
The structures compared
| Feature | Sole proprietorship | Partnership | Corporation | Co-operative |
|---|---|---|---|---|
| Owners | One individual | Two or more individuals, corporations, trusts or partnerships | Shareholders | Members, who hold membership shares |
| Separate from the owners? | No | The partners report its income themselves | Yes, a separate legal entity | Yes, an incorporated co-operative |
| Liability for business debts | Yours, extending to your personal property and assets | In a general partnership, every partner is liable jointly for the firm’s debts (Ontario’s rule) | Shareholders are not responsible for the corporation’s debts, except debts they personally guarantee | Members aren’t liable for the co-operative’s debts just by being members (Canada Cooperatives Act, s. 29, for federal co-operatives) |
| Income tax | You pay personal tax on the business’s net income | Each partner pays tax on their share | The corporation files a T2 and pays corporate tax | Not compared here |
| Decisions | The owner | The partners, usually under a partnership agreement | Directors, elected by shareholders | Directors elected by members, one member one vote |
| How it ends | When the owner stops or dies | Under the partnership agreement and provincial law | Continues until it winds up, amalgamates or gives up its charter | Under the co-operative’s governing act |
Sources: CRA, sole proprietorship, partnership and corporation; Corporations Canada, benefits of incorporating; ISED, understanding co-operatives; Ontario Partnerships Act, s. 10.
Sole proprietorship
A sole proprietorship is an unincorporated business owned by one individual, the simplest structure. You make the decisions, keep the profits and claim the losses, and the business has no legal status apart from you, so its risks extend to your personal property. You report the business on your T1 return with Form T2125, pay income tax and both shares of CPP on its net income (see the self-employed tax calculator), and may have to pay instalments. You can operate under your own name or register a business name.
Partnership
A partnership is two or more people or entities carrying on a business together, each contributing money, labour, property or skills for a share of the profit or loss. The CRA notes that a simple verbal agreement is enough to form one, though most partnerships have a written agreement. The partnership is bound by the actions of any partner within its usual scope of operations.
Tax. A partnership doesn’t pay income tax or file an income tax return. Each partner reports their share of its income or loss on their own personal, corporate or trust return, with Form T2125 for an individual partner. The partnership itself files a T5013 information return for a fiscal period when, among other cases listed by the CRA, its revenues plus expenses are over $2,000,000 or its assets over $5,000,000, it is part of a tiered partnership, or it has a corporation or a trust as a partner. For GST/HST, the CRA treats a partnership as a separate person that may have to register.
Kinds of partnership. Liability is set by provincial partnership law. Ontario’s, as an example:
| Kind | Partners’ liability (Ontario) | Formed under |
|---|---|---|
| General partnership | Every partner is liable jointly with the others for the firm’s debts and obligations incurred while they are a partner | Partnerships Act |
| Limited partnership | General partners are fully liable; a limited partner isn’t liable beyond the money and property they contributed or agreed to contribute, unless they take part in the control of the business, which makes them liable as a general partner | Limited Partnerships Act |
| Limited liability partnership (LLP) | A partner isn’t liable for the negligence of other partners or the partnership’s employees, or for other partnership debts incurred while it is an LLP, with limits in the Act | Partnerships Act; only for a profession whose governing act permits LLPs and whose governing body requires liability insurance |
Sources: Ontario Partnerships Act, ss. 10 and 44.2; Limited Partnerships Act, ss. 9 and 13. Other provinces have their own acts.
Corporation
A corporation is a separate legal entity: it can own property and enter into contracts in its own name, and it continues to exist until it winds up, amalgamates or gives up its charter. Owners transfer money, property or services to it in exchange for shares. You can incorporate federally with Corporations Canada ($200 online) or with your province or territory.
Tax. The corporation files a T2 return no later than six months after the end of every tax year, even if it does not owe taxes, with financial statements, and generally pays its tax in instalments. You pay personal tax only on what it pays you, as salary or dividends. Its shareholders can’t claim its losses.
Liability. Shareholders aren’t responsible for its debts, but a personal guarantee you give a lender makes you liable for that loan, and directors can be liable for source deductions and GST/HST the corporation fails to remit (CRA).
Selling. A gain on qualified small business corporation shares can be sheltered by the lifetime capital gains exemption ($1,275,000 for 2026) if, when you sell, the corporation is a CCPC using 90% or more of its assets (by fair market value) mainly in an active business carried on primarily in Canada, no one other than you, your partnership or a related person owned the shares in the 24 months before the sale, more than 50% of its assets met that test throughout those 24 months, and you were resident in Canada throughout the year. See the lifetime capital gains exemption guide.
Family members. Dividends paid to family members can be caught by the tax on split income (TOSI), covered on the incorporation page.
Small business tax rates by province
The small business deduction, which brings the federal rate down to 9%, is available only to a corporation that was a Canadian-controlled private corporation (CCPC) throughout the year, and only on active business income carried on in Canada up to a $500,000 business limit that associated corporations share; the limit shrinks when the group's passive investment income is over $50,000 (reaching zero at $150,000) or its taxable capital is over $10 million. The provinces and territories each add a lower rate on the income eligible for the small business deduction, and some set a business limit above the federal one.
| Province or territory | Provincial lower rate | Combined with the federal rate | Provincial business limit |
|---|---|---|---|
| British Columbia | 2% | 11% | $500,000 |
| Alberta | 2% | 11% | $500,000 |
| Saskatchewan | 1% | 10% | $600,000 |
| Manitoba | 0% | 9% | $500,000 |
| Ontario | 2.2% | 11.2% | $500,000 |
| New Brunswick | 2.5% | 11.5% | $500,000 |
| Nova Scotia | 1.5% | 10.5% | $700,000 |
| Prince Edward Island | 1% | 10% | $600,000 |
| Newfoundland and Labrador | 2.5% | 11.5% | $500,000 |
| Yukon | 0% | 9% | $500,000 |
| Northwest Territories | 2% | 11% | $500,000 |
| Nunavut | 3% | 12% | $500,000 |
Federal rate 9% for every province. Rates from the CRA’s corporation tax rates table, except Ontario, whose lower rate is 2.2% from July 1, 2026 (3.2% before; Ontario), and Alberta (Alberta), which collects its own corporate tax. When a rate changes during a corporation’s tax year, each rate applies for the days it was in effect. Quebec also collects its own corporate tax and isn’t shown; see Revenu Québec for its rate.
$100,000 of profit in Ontario, chosen for illustration. A sole proprietor pays $28,338 of income tax and CPP on it for the 2026 tax year. A corporation that keeps all of it, in a tax year that starts on or after July 1, 2026, pays $11,200 of corporate tax at 11.2% (a tax year that includes days before that date prorates the Ontario rate by days), but the owner pays personal tax later on whatever comes out as salary or dividends, and neither CPP contributions nor RRSP room build up on profit left in the corporation.
Co-operative
A co-operative is a business founded by an association of persons to meet common needs, such as getting goods and services or selling their products. ISED describes the differences from a share-capital corporation: each member gets one vote at a general meeting whatever the number of shares they hold; profits are redistributed to members in proportion to their participation rather than paid to shareholders; membership shares generally keep a stable value and can be bought back only at their original price; and a federal co-operative must have at least three directors who hold membership shares. Federal co-operatives are incorporated under the Canada Cooperatives Act (ISED).
Annual filing by structure
| Requirement | Sole proprietorship | Partnership | Corporation |
|---|---|---|---|
| Income tax return | Your T1 with Form T2125 | Each partner’s own return with their share; T5013 information return only when the CRA’s conditions apply | T2 no later than six months after the end of every tax year, even if it does not owe taxes, plus each owner’s T1 |
| Filing deadline | The self-employed deadline; see first-year self-employed taxes | Same as each partner’s own return | 6 months after the corporation’s tax year-end |
| GST/HST | Register once past the small-supplier threshold | The partnership may have to register, as a separate person | The corporation may have to register |
| Corporate annual return | None | None | Federal corporations file one each year ($12 online); provincial corporations follow their province’s rules |
| Payroll (if it has employees) | Yes | Yes | Yes, including any salary paid to the owner |
GST/HST registration works the same way for every structure: You have to register for the GST/HST once you make taxable sales in Canada and are no longer a small supplier: that happens when your taxable sales go over $30,000 in a single calendar quarter (register from that sale) or over the last 4 consecutive calendar quarters (by the end of the month after that quarter); below that you can register voluntarily. See GST/HST on freelance income.
Which structure fits which situation
- Testing an idea or a side hustle on your own: a sole proprietorship has the least setup and filing; the business risk stays with you personally.
- Two or more people starting together: a partnership is easy to form, and a written agreement settles how profit is shared and what happens when a partner leaves; every general partner is exposed to the firm’s debts.
- Profit you don’t need to live on, liability concerns or a planned sale: these are the situations where a corporation’s small business rate, limited liability and the lifetime capital gains exemption on shares come into play, at the cost of a T2 return and corporate records.
- Regulated professionals: professional corporations and LLPs depend on the profession’s governing act; see professional corporations.
- A group of people meeting a shared need, with equal votes: a co-operative.
Related articles
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Setting up your business: partnership
- Canada Revenue Agency: Setting up your business: corporation
- Canada Revenue Agency: Corporation tax rates
- Canada Revenue Agency: Manitoba – Provincial corporation tax
- Canada Revenue Agency: Capital Gains – 2025
- Canada Revenue Agency: Line 25400 – Capital gains deduction
- Canada Revenue Agency: Small business deduction rules
- Canada Revenue Agency: When to register for and start charging the GST/HST
- Government of Alberta: Tax, levy, and prescribed interest rates | Alberta.ca
- Government of Canada: Services, fees and processing times
- Government of Ontario: Corporate Income Tax | Corporations Tax
- Justice Laws (Canada): Income Tax Act