At our Telsec office downtown, a lot of our tenants are sole proprietors, while others are incorporated companies. We often hear some of them ask whether they should incorporate or not.


For some small businesses, the question may not be if, but when they should incorporate. As your business grows, your legal, financial, liability and tax situations will change – but incorporation may or may not be good for every small business. Incorporating your business in Canada offers several advantages, but there are also some drawbacks to consider. Here’s an overview from a business owner’s perspective

What Is Business Incorporation?

Business incorporation is the process of legally forming a new corporation as a separate entity from its main owners (also known as shareholders). When your business is incorporated, it becomes recognized by the law, with its own rights, responsibilities, and liabilities. Here are the key steps involved in business incorporation: 

How to Incorporate Your Small Business

Incorporating a small business in Canada involves several steps, and it’s essential to follow the legal requirements specific to the province or territory you plan to register in. Here’s a general guide below:

Choose a Corporation Name

This is the part where you can get creative. Select a unique and suitable name for your corporation that complies with the naming requirements of the jurisdiction where you will incorporate. Make sure your name isn’t already in use by another business and includes a corporate designation like “Corporation” or “Incorporated”, or an abbreviation of those words. 

Prepare Articles of Incorporation

Next up, you’ll need to draft Articles of Incorporation, which are legal documents that outline key details about your business. This includes its name, registered office address, share structure, and initial directors. You can use standard templates provided by government agencies or seek legal advice to ensure you’re following all the regulations. 

File Your Incorporation Documents

In order to incorporate, you have to submit the Articles of Incorporation along with the required filing fees to the appropriate government authority. This process officially registers your business as a corporation. You can file online, by mail, or in person, depending on your jurisdiction’s procedures. 

Get Any Necessary Permits and Licenses

Depending on the nature of your business and its location or whether it’s online, you’ll need to make sure you have the right permits or licenses to operate legally. This can include any business licenses, zoning laws and permits, industry-specific certifications, or health and safety permits (from municipal, provincial, or federal authorities). 

Apply For Tax Accounts 

To become an incorporated business, you have to apply for the necessary tax accounts, including a business number (BN) and a corporate income tax account with the Canada Revenue Agency (CRA). These accounts are used for filing your business taxes, remitting payroll deductions, and fulfilling other tax obligations.

Issue Shares and Prepare Corporate Bylaws

Once you’re incorporated, issue shares to the initial shareholders in exchange for their capital contributions. Draft any corporate bylaws to establish rules and procedures that will govern the internal operations of your business. This can include any internal shareholder meetings and director appointments for the decision-making process.

Pros of Incorporating Your Small Business

Deciding which business structure works best for you can be a daunting task. That’s why it’s essential for business owners to carefully consider their specific needs, objectives, and circumstances. Check out the benefits of incorporating your business below:

Tax Benefits

When you become incorporated, you can benefit from lower tax rates compared to other business structures, like sole proprietorships or partnerships. There are also many tax planning opportunities available to corporations including income splitting, tax deferrals, and access to small business tax deductions. For many small businesses, these savings can make a big difference. 

Limited Liability Protection

One of the top primary advantages of incorporating your small business is the limited liability protection it provides to the owners (shareholders). Because it’s a separate entity altogether, the corporation assumes liability for any debts and obligations, which protects any personal assets. This means shareholders or main business owners are protected against any creditors on a personal level. 

Employee Benefits and Incentives

Depending on your business model, you can potentially offer various employee benefits and incentives, like stock options, pension plans, and health insurance. This can help you attract and retain top talent (if you have employees). This can enhance employee satisfaction, productivity, and loyalty – which contributes to company success. 

Legal Protection and Asset Management

Incorporating a small business can provide legal protection and help manage business assets more effectively. It allows for clear separation between personal and business assets, which reduces the risk of personal liability for debts or legal claims. On top of that, corporate structures can offer flexibility in managing ownership, transferring shares, and structuring ownership interests.

Cons of Incorporating Your Small Business

While there are many advantages to incorporating your business, there may be some disadvantages, depending on your business model. We break them down below:

Higher Costs

Sometimes, incorporating your small business can incur higher upfront costs. This is due to incorporation fees, legal expenses, and ongoing operational costs associated with running your business. Additionally, this can include accounting fees, corporate taxes, or regulatory compliance costs. These expenses can be a lot for small businesses, so make sure to have a finance plan in place if you’re going to incorporate

Double Taxation

Canadian corporations have to pay a corporate income tax on their profits. If your corporation distributes dividends to shareholders, those payouts are also taxed again on an individual level, which results in a double taxation. There are tax planning strategies available that help mitigate these processes, however it can still impact your after-tax earnings. 

Regulatory Compliance Burden

Small business owners must comply with various federal, provincial, and municipal regulations as a corporation, which can be complicated and subject to change. It’s important to stay on top of any of these changes and if you’re not sure, you can seek legal counsel. 

Complex Setup and Maintenance

Setting up your incorporation involves lots of paperwork, legal formalities, and ongoing administrative tasks compared to different business structures. This complexity can increase setup costs and require ongoing attention to compliance matters like annual filings, shareholder meetings, and corporate record-keeping. 


If you’re a small business owner thinking about incorporating, make sure to evaluate your whole business model before committing. There are many advantages, from taxes to liability protection, and more. 


At Telsec, we offer different memberships, no matter what type of work you do. Whether you have an online business or a small team, we offer private and shared office spaces, to virtual office options. For more information, book a tour with us today.