If you've been running your business as a sole proprietor or partnership and it's starting to grow, you may be wondering whether it's time to incorporate. Incorporation is one of the most consequential decisions a small-business owner can make, with lasting implications for legal liability, taxation, succession planning and estate planning. Understanding how the process works, and when it makes sense, can help you feel more confident about the path you choose.

What it means to incorporate a business

Most businesses in Canada take one of three forms:

• Sole proprietorship
• Partnership
• Corporation

A sole proprietorship and a partnership are relatively simple structures where the business and the owner are essentially the same entity. A corporation, by contrast, is an independent legal entity that exists separately from its owners.

When you incorporate, you create that separate legal entity. The corporation can own assets, enter into contracts, incur liabilities and earn income in its own name. This separation is what gives incorporation both its legal and financial advantages — and its added complexity.

Incorporating vs. registering a business

One of the most common sources of confusion is the difference between registering a business and incorporating one. They aren't the same thing, and understanding the distinction helps you choose the right path.

Registering a business is the process of formally recording your business name and activity with a provincial or territorial government. If you operate as a sole proprietor or partnership under a name other than your legal name, you generally need to register that business name. Registration allows you to legally operate under your chosen name, open a business bank account and comply with local regulations. It's relatively simple and inexpensive, but it doesn't create a separate legal entity — you remain personally responsible for the business' debts and obligations.

Incorporating a business goes a step further. It creates a brand-new legal entity — the corporation — that is separate from you as an owner. This separation provides limited liability protection, potential tax advantages and a formal ownership structure through shares.

Here's a quick comparison between registering and incorporating a business:

You must register your business name before (or as part of) incorporating, but you don't have to incorporate right away. Many small-business owners start as a sole proprietorship and incorporate later, once the business has grown and the benefits of incorporation begin to outweigh the costs.

Benefits of incorporation

Incorporating provides both legal and financial advantages that can make a meaningful difference as your business grows.

Drawbacks and costs of incorporation

Incorporation isn't the right choice for every business, and it's important to weigh the drawbacks carefully.

How to incorporate your business: the steps

The incorporation process is broadly similar across Canada, though the specifics vary by province. Here's a general overview of the steps involved. If you plan to incorporate provincially, see the province-specific sections below for Ontario, British Columbia and Alberta.

Incorporating in different provinces

How to know if you're ready to incorporate

Knowing how to incorporate is only half the equation. The other half is knowing whether the time is right. Here are three key questions to help you decide:

Does incorporation make sense for you?

Choosing the structure of a business is a foundational decision that has a significant impact on legal liability, taxation, succession planning and estate planning. That's why it's essential to seek specialized legal and tax guidance before you decide. An Edward Jones financial advisor can also help you think through how incorporation fits into your broader financial picture, from retirement savings to succession planning.