Business & Corporate Law
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Last updated: October 28, 2026
In British Columbia, a sole proprietorship is simply you doing business, so you are personally responsible for the business’s debts. A corporation (called a “company” in BC) is a separate legal person that usually limits your personal exposure, but it costs more to set up and run and its protection has important exceptions. The right choice depends on your risk, your profits, your plans and the obligations you are prepared to take on.
Choosing a business structure is one of the first legal decisions a new business owner makes, and it is easy to get wrong in both directions: some people incorporate before they need to, while others carry on as sole proprietors long after the risks justify a company. This guide explains, in plain language and under BC and federal law, how each structure works, where incorporation does and does not protect you, the general tax differences, the ongoing obligations, and the points that are worth discussing with a lawyer and an accountant before you decide.
Key takeaways
Table of contents
A sole proprietorship is a business owned and run by one individual who has not formed a company. Legally, there is no “business” separate from the owner. A BC court put it simply in Apex Packaging v Winterland Beverages Ltd, 2023 BCSC 69, at para. 3: because the plaintiff was a sole proprietorship, it was not a separate legal entity from its owner.
A corporation, which BC legislation calls a company, is created under the Business Corporations Act, SBC 2002, c. 57 (the “BCA”). The Supreme Court of Canada has confirmed the long-standing rule that “as a general rule a corporation is a legal entity distinct from its shareholders” (Kosmopoulos v Constitution Insurance Co, [1987] 1 SCR 2). Under s. 30 of the BCA, a company has the capacity, rights, powers and privileges of an individual of full capacity. It can own property, sign contracts, borrow money, sue and be sued in its own name.
That single difference, one legal person or two, drives most of the practical differences in liability, tax, paperwork and how the business can grow or be sold.
A sole proprietorship is the simplest way to start. If you operate under your own legal name, there is generally no separate registration of the business itself, although you may still need municipal business licences, permits and tax registrations.
If you use a different business name, the Partnership Act, RSBC 1996, c. 348 may apply. Section 88 requires a person who carries on business for trading, manufacturing or mining purposes, is not in a partnership, and uses a name other than their own (or adds words such as “and Company” suggesting more than one owner) to file a registration statement within 3 months after the name is first used. The name must first be reserved, and the registrar can refuse a name that is likely to confuse or mislead.
Registering a name does not create a separate legal entity or limit liability. Business income is reported on the owner’s personal tax return, contracts are signed by the owner personally, and the owner’s personal assets can be exposed to business creditors.
Under s. 10 of the BCA, one or more persons form a company by entering into an incorporation agreement, filing an incorporation application with the registrar and complying with Part 2 of the Act. Among other things:
The choices made at this stage, such as share classes, who holds shares, who the directors are and what the articles say, affect control, tax planning, financing and future disputes. They are much easier to get right at the start than to fix later. Our article on federal vs provincial incorporation explains another early decision.
Usually, but not completely. Section 87 of the BCA provides that no shareholder of a company is personally liable for the debts, obligations, defaults or acts of the company, except as provided in the Act. A shareholder’s exposure is generally limited to any unpaid amount on their shares. (BC also permits unlimited liability companies, where this rule does not apply in the same way.)
Important exceptions remain:
Courts rarely disregard a company’s separate existence. The BC Court of Appeal has said this generally happens where the corporate form has been abused for fraudulent or illegitimate purposes, and not simply because a result seems unfair or because one person controls the company (Edgington v Mulek Estate, 2008 BCCA 505, paras. 22–24).
A sole proprietor’s business profit is the owner’s own income (s. 9 of the Income Tax Act) and is taxed at personal federal and BC rates in the year it is earned, whether or not the money is withdrawn.
A corporation is a separate taxpayer. A Canadian-controlled private corporation may qualify for the federal small business deduction (s. 125) on active business income up to its business limit, which can produce a lower corporate rate on that income. If profits are left in the company, this can create a tax deferral; when money is later paid out as salary or dividends, personal tax applies. Incorporation is therefore not automatically a tax saving, and in some years it may cost more once accounting and filing fees are counted.
Other tax points that may matter include the lifetime capital gains exemption, which can apply on a sale of qualifying small business corporation shares only if detailed conditions are met, and GST/HST registration, which is generally required once taxable supplies exceed the $30,000 small supplier threshold in s. 148 of the Excise Tax Act. Because tax rules change and depend on your numbers, structure decisions should be made with an accountant as well as a lawyer.
A company brings ongoing legal housekeeping that a sole proprietor does not have:
If a company fails to file annual reports in each of 2 consecutive years, the registrar may dissolve it under s. 422, after a notice process. Dissolution is not automatic after one missed filing, but restoring a dissolved company takes time and cost, and its property can be affected in the meantime.
There is no single income level or rule that decides the question. Owners commonly consider incorporating when:
A sole proprietorship may remain sensible for a low-risk, early-stage or side business, especially while profits are modest and the owner wants to keep costs and paperwork low. Insurance, careful contracts and good records matter under either structure.
Yes. Many businesses start as sole proprietorships and incorporate as they grow. Under s. 85 of the Income Tax Act, eligible property can generally be transferred to a taxable Canadian corporation in exchange for shares on a tax-deferred basis if the owner and the corporation file a joint election. The election has technical requirements and deadlines, and not every asset qualifies.
Converting also raises legal questions: whether existing contracts, leases, licences and permits can be assigned to the company; whether lenders or landlords will require personal guarantees; how employees are transferred; and how the business name and goodwill move over. Planning these steps in advance helps avoid gaps in coverage or unexpected liability.
Pax Law Corporation’s business law team advises owners in British Columbia on choosing a structure, incorporating BC companies, drafting articles and share structures, shareholder agreements, and moving an existing sole proprietorship into a company. We work alongside your accountant so the legal and tax pieces fit together. For more background, see our article on incorporating in BC.
Generally yes. A sole proprietorship is not a separate legal entity, so the owner is the person who owes the business’s debts and contractual obligations, and personal assets can be exposed.
No. Registering a sole proprietorship name under the Partnership Act lets you use that name, but it does not create a separate legal entity or limit your personal liability.
If you carry on business under your own legal name, separate registration is generally not required. If you use a different name, section 88 of the Partnership Act may require you to reserve the name and file a registration statement within 3 months after first using it. Licences and tax registrations may still be needed.
Generally no. Section 87 of the Business Corporations Act provides that shareholders are not personally liable for the company’s debts, obligations or acts, except as the Act provides, such as for any unpaid amount on their shares. Unlimited liability companies are treated differently.
Yes, in specific situations. Directors can be liable for up to 2 months’ unpaid wages per employee under the Employment Standards Act, and for unremitted payroll source deductions and GST/HST under federal tax law, subject to conditions and defences. They are also bound by personal guarantees they sign.
The Business Corporations Act requires at least one director for an ordinary company and does not set a BC or Canadian residency requirement for directors. Practical issues such as banking and tax administration may still affect who should serve.
No. A Canadian-controlled private corporation may qualify for the small business deduction and allow profits to be retained at corporate rates, but personal tax applies when money is paid out, and added costs can outweigh the benefit for some businesses. Advice on your own numbers is important.
If a company fails to file annual reports in each of 2 consecutive years, the registrar may dissolve it after a notice process. Dissolution is not automatic after one missed report, but a dissolved company must be restored before it can carry on normally.
Usually yes. Eligible business assets can often be transferred to a new corporation for shares on a tax-deferred basis using a joint election under section 85 of the Income Tax Act. Contracts, leases, licences and employees also need to be addressed.
It is an internal register that private BC companies must keep of significant individuals, such as people with interests in 25% or more of the shares or votes. It is generally not open to the public.
If you are deciding whether to incorporate, or want to move an existing business into a company, Pax Law Corporation can review your situation and explain your options. Pax Law Corporation is a general practice with offices in North Vancouver and Toronto, and you can book a consultation with either office.
This article discusses BC and federal law. Ontario businesses are subject to different provincial legislation.
General information only, not legal advice. This article provides general information about British Columbia and federal law as of the date shown and is not legal or tax advice. Every business is different, and the law and tax rates change. Reading this article does not create a lawyer-client relationship. Please obtain advice from a lawyer and an accountant about your own circumstances before making decisions.
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