Sole Proprietorship vs. Incorporated Company

Here is a clear summary of the differences between a sole proprietorship and an incorporated company in Quebec/Canada:

1. Legal liability

Sole proprietorship

The owner is personally liable for all the company's debts and obligations. If the company has financial problems, creditors can seize your personal assets (house, car, etc.).

Incorporation

The company is a separate legal entity. Liability is limited to the company's assets, which protects the owner's personal assets (except in cases of gross negligence or personal guarantees given to the bank).

2. Taxation and duties

Sole proprietorship

Your income is taxed directly on your personal tax return, at your progressive personal tax rate. This can quickly become substantial if your income increases.

Incorporation

The company pays tax on its profits at the corporate tax rate (much lower than the personal rate, approximately 12–15% in Quebec for an eligible SME). You only personally pay tax when you withdraw money (salary or dividends). This allows you to defer taxes and better plan your income.

3. Costs and administrative obligations

Sole proprietorship

Inexpensive to start, simple accounting obligations (income/expenses, basic bookkeeping).

Incorporation

Incorporation fees (approximately $400–$600), more complex obligations (articles of incorporation, annual returns, full bookkeeping, financial statements). An accountant is often required.

4. Funding and credibility

Sole proprietorship

Financing is primarily based on the owner's personal credit. Less credible for investors or large institutions.

Incorporation

Improved credibility with banks, investors, and partners. Easier to sell shares, raise capital, or bring in new partners.

5. Growth and Succession

Sole proprietorship

Difficult to transfer or sell, because the business is directly linked to the individual.

Incorporation

Easier to sell or transfer (sale of shares). Can continue to exist even if the founder retires.

✅ In summary:

Sole proprietorship

Simple, fast, inexpensive, but high personal risk and fewer tax advantages.

Incorporation

More complex and expensive, but protects your personal assets, offers significant tax advantages and facilitates growth.