Sole Prop vs. Corp – Choose the Right Business Structure in British Columbia

Starting a new venture in BC? One of your first and most important decisions is which business structure to choose. The choice between a sole proprietorship and a corporation in British Columbia affects everything from your personal liability to how much tax you pay. Let’s break it down clearly, so you can make the right call.  

TLDR

If you’re running a small or low-risk business and want something easy and affordable to set up, a sole proprietorship can be a good choice. The downside is you’re personally liable for business debts, and profits are taxed at your personal income rate. On the other hand, if you want limited liability, access to the 11% small business tax rate on income under $500,000, and greater credibility with lenders, clients, or investors, then a corporation is the better option, especially if you’re planning for long-term growth. To understand the pros and cons of both and make a sound decision, continue reading this blog.  

What is a Sole Proprietorship?

A sole proprietorship is the simplest business structure, requiring minimal setup and low initial costs. However, the major drawback is that you are personally liable for any business debts or legal claims, meaning your personal assets (like your home) could be at risk. Additionally, earnings are added to your personal income and taxed at personal income tax rates, which may reach higher marginal levels depending on your total income.  

What is a Corporation?

A corporation is a separate legal entity. It shields your personal assets, meaning your liability is generally limited to what you’ve invested in the company. In terms of taxes, corporation taxes in BC are favourable: small Canadian-controlled private corporations benefit from a combined federal and provincial tax rate of ~11% on active business income up to $500,000. Corporations also offer better opportunities for reinvestment, income-splitting and enhanced access to business financing.  

Sole Proprietorship vs Corporation in BC: Key Differences

Here’s a side-by-side overview:

Factor	Sole Proprietorship	Corporation
Liability	Unlimited personal liability	Limited to company assets
Taxes	Personal tax rates (up to ~50%)	Small business rate (~11%)
Setup & compliance	Simple, low-cost	More paperwork and ongoing fees
Financing & credibility	Less formal	More credibility, easier to scale

 

How to Register a Business in BC

For a sole proprietorship, you register your business name through BC Registries, it's fast and low-cost. If incorporating, you'll submit articles of incorporation, create a share structure and file annual reports. Incorporation requires more attention to compliance, such as separate tax filings and corporate record-keeping, but offers long-term benefits.  

Which Business Structure is Right for You?

Ask yourself:

• Are you testing an idea or starting small? A sole prop is practical and low-cost.
• Are you growing, raising funds, or worried about liability? Incorporation offers protection and planning flexibility.
• Is minimizing tax crucial for you? The lower corporate tax rate (11%) may offer real savings.

Choosing the right structure isn't just about today's needs, it's about where you want your business to go tomorrow.  

Conclusion

The decision between a sole proprietorship and corporation in British Columbia comes down to your personal risk tolerance, tax strategy and growth ambitions. A sole prop is simple but exposes you to personal risk. A corporation costs more to manage but brings protection, incentives and financial benefits. CJCPA can help you navigate this decision, from setting up the right structure to optimizing for tax and compliance. Schedule a call with us to ensure you start strong and grow smarter.  

FAQs

Is a sole proprietorship good for all small businesses?

Only if your business involves low risk and you don’t mind personal liability.  

What is BC’s corporate tax rate for small businesses?

Approximately 11% combined federal and provincial tax on active income up to $500,000.  

Can I switch from sole prop to corporation later?

Yes, it is possible to switch later. Many business owners incorporate as their operations scale.  

Does incorporating mean more paperwork?

Yes. It requires annual filings, separate tax returns and better record-keeping. It’s recommended to have a business accountant for incorporation.