How to Change Your Sole Proprietorship to an Incorporated Company

Originally Published: Jan 1, 2019

When a company begins growing, many business owners start wondering how they can switch their Sole Proprietorship into an Incorporated company. If you’re looking to incorporate, congratulations on expanding your business to the point where incorporation is the better option for the future of your business. And it’s easier than you may think to make the switch from Sole Proprietorship to an Incorporated company.

Is it Better to be a Sole Proprietorship or Incorporated Company?

This is a common question we receive when a registered Sole Proprietorship owner is looking at incorporating.  Overall, an incorporated company provides many features that a Sole Proprietorship does not including name protection for the business, tax reductions, easier analysis for selling the business and ability to make changes to the business such as shareholders (owners), directors or officers of the business. A corporation also has liability protection.  As a Sole Proprietorship, your personal assets may be accessible to any third party for liability or debt repaying on behalf of the business.

Can I Own a Corporation by Myself?

Yes, if you are a Canadian Citizen or Permanent Resident (PR), you can operate a business as a sole director across Canada with a provincial or federal incorporation.  If you are not a Canadian Citizen or Permanent Resident, you can incorporate by yourself by completing the following provincial incorporation:

• BC Incorporation
• Ontario Incorporation
• New Brunswick Incorporation

What is the Disadvantage of Incorporating?

There are only a few drawbacks to having a incorporating business over a Sole Proprietorship including the cost to set up a corporation (we provide the example in Ontario specifically for the costs), the secondary tax filing submission to the Canada Revenue Agency and the yearly required Annual Return submissions to the corporate registry within the jurisdiction of incorporation where applicable.

At What Income Should I Look at Incorporating?

There are all kinds of figures put out by different sources who claim once you earn $60,000 or $80,000 or when you hit 6 figures as the owner of the business, you should look at incorporating. It’s not about how much you earn but how much you need for your personal expenses.  If you are paying yourself, and after all of your expenses you still have money left for savings, this is when you should start looking at incorporating your Canadian business.  When you can leave the unnecessary money in the corporation, you have the opportunity for large tax savings when you compare the corporate tax rate to the personal tax rate.  

How Do I Pay Myself Once I Incorporate? 

As a Sole Proprietorship or Sole Trader, everything the business made minus the expenses to operate became your income without any choices.  Once you incorporate the business, the opportunity for different income options are available to you.  Most individuals pay themselves a salary to the maximum RRSP limit when they want to contribute to the RRSP for retirement.  Each year, this income number increases but its roughly an income of $60,000.00 salary where you can max out your RRSP’s.  From there, you can continue to pay yourself a salary or pay yourself by dividend, there is a marginal difference between the two and a tax expert is able to determine the best option for you.  Where you can really see an opportunity for tax savings is when you are able to keep money in the corporation and not take it out personally at all.  This is the best tax savings opportunity for most individuals.  If you have family members who assist you in the business, you can provide a salary to them as well.  We highly recommend you sit down with a CPA or tax professional to understand your exact scenario to maximize your benefits and reduce your taxable income.

Am I Able to Use the Same Business Name?

Yes, you can absolutely use the same name as the business you are currently operating if you choose. The only thing that will need to change is to add a legal ending to the business name. There are six options for legal endings you can choose from:

• Inc.
• Incorporated
• Ltd.
• Limited
• Corp.
• Corporation

If you are looking to incorporate a named company, a Nuans report is required to show any names that are similar to your proposed corporate name. This report would also show your current Sole Proprietorship so, if you’re using the same name, you would be asked to confirm that the Sole Proprietorship appearing in the Nuans report is indeed yours. Then, providing there are no existing businesses that appear to be conflicting with the name, we can proceed to incorporate your business.

What Other Information is Required to Incorporate?

When incorporating your business, you’ll be asked for information similar to what you provided when you first registered your Sole Proprietorship, including:

• Your business address
• Your legal name and address, and the names and addresses for any other directors to be listed
• The share structure you want to use (you can choose from either 1 or 2 classes of shares, or you can provide your own structure.)
• The minimum and the maximum number of directors (Most businesses choose to list a minimum of 1 and maximum of 10 directors, in order to leave room for any expansion or reduction of directors over time.)
• Your telephone and email address, which is solely used for us to communicate with you

Am I Able to Add Another Person to the Incorporation?

If you wish to add another person to your incorporation as a director, who was not previously a part of your original business, you can absolutely do that with your filing. Additionally, if you ever decide to add someone to your incorporation as a director or remove someone, you’ll simply need to file a Notice of Change.

How Long Does the Process Take?

We at Ontario Business Central offer same day Incorporation services Monday through Friday, with orders submitted before 3 PM. If you need assistance, we are available weekdays between 9:00 am and 5:00 pm.

There are some differences between an Ontario Incorporation and a Federal Incorporation. Here are some of the key similarities and differences:

Ontario Incorporation vs. Federal Incorporation

Both Ontario and Federal jurisdictions for incorporation offer the following:

• Considered a separate entity from individual owners
• Limited personal liability
• Tax rate advantages
• Greater access to capital
• Continuous existence
• Name protection within their jurisdiction

In terms of differences, these are the main ones you’ll see between the two jurisdictions:

Ontario Incorporation

• Higher start-up costs, government fee $360
• One mandatory filing after incorporation
• Fewer formalities
• Business name protection in Ontario only
• Limited foreign recognition (Ontario)
• Easier name acceptance

Federal Incorporation

• Lower startup costs, government fee $200
• Yearly mandatory filings @ $50 per year
• More formalities
• Higher name protection within Canada
• Higher foreign recognition (Canada)
• The business name must be accepted by a federal examiner

Read more about the differences between an Ontario and Federal Incorporation.

Each type of legal entity has its advantages and disadvantages. Depending on the importance you place on business name protection within Canada, name accessibility to register the corporation in other Provinces, the interaction of foreign individuals and corporations with the corporation, and the administration requirements, each form of incorporation has its merits and limitations.

What Happens to my Sole Proprietorship After Incorporation Has Been Completed?

Generally, it takes about a week to set up everything for a new corporation, including setting up your new bank account and making changes to cheques and business cards. After this is all done, you will want to cancel the currently registered Sole Proprietorship. If any HST, WSIB, or payroll accounts exist with the registration that is being cancelled, these would also need to be cancelled as well, and set up under the newly incorporated company.

Once the Incorporation Has Been Completed, What do I Need to Change or Update?

• Bank account – incorporating puts your business into a new business category with most banks. Check with your bank to see if a new bank account will be needed
• Cheques – new cheques will need to be issued with the business name to include the legal ending, and the new bank account information
• Tax accounts – Any HST, payroll, WSIB, or other accounts will need to be set up for the corporation or changed
• Business cards – to reflect the new corporate name
• Letterhead – to reflect the new corporate name
• Logo – if the business name appears within the logo, it should be updated
• Storefront/signage

We can assist you with both the registering your new incorporation and with cancelling your current Sole Proprietorship, if you choose to do so.

Cancel Your Sole Proprietorship

Incorporate in Ontario

Incorporate a Federal Company

Should you have any questions about canceling your Master Business Licence or Incorporating, please feel free to contact our office for more information or assistance.

inquiries@ontariobusinesscentral.ca
Toll-Free: 1-800-280-1913
Local: 1-416-599-9009
Fax: 1-866-294-4363
Office Hours: 9:00am – 5:00pm
Monday – Friday E.S.T.

Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.