Sole Proprietor or Corporation?

Every lawyer who hangs that metaphorical shingle must ask themselves a key question: which is the most appropriate business structure for my firm? This question may be posed at various points in a lawyer’s career. I remember when I was at law school (Queen’s Law, Class of 2007), there were intrepid students who were already laying plans. For myself, I started my business in 2015, after articling at a big firm on Bay Street, working as Staff Lawyer for a community legal clinic and then at a boutique law firm (under a truly terrible owner). For the past 10 years, I have operated as a Sole Proprietor and, after many (many!) meetings with senior counsel, business managers and accountants, we are finally transitioning to a Corporation. Let me share with you our decision-making, and for any lawyers out there who are thinking of taking this significant step, this post may be a useful resource. (Feel free to contact me directly for further guidance.)

Now, readers may read the title of this post and immediately recognize the false dichotomy. Indeed, many lawyers work at LLPs and that is clearly an option for many firms. My first gig after articling was at an LLP and I acutely remember the strict hierarchy within that workplace. The Law Society Act allows for other options within the scope of a “firm”. I will focus on the differences between a sole proprietorship and a professional corporation as those are the main options within this context.

One of the most common criticisms of law school is that it does not teach the business side of a legal practice. I loved my time in Kingston and I honed my legal memo skills during those years; however, I cannot recall a single class on running a business. I have had to learn those skills on my own, with the help of mentors and outside resources.

I applaud the Law Society of Ontario’s requirements, which began 1/ JAN/ 2025, for all lawyers and paralegals who declared themselves as sole practitioners to complete the Foundations of Sole Practice course online. In Manitoba, I completed the Trust Account Supervisor program which was invaluable. Indeed, there are many resources provided by law societies across Canada, including Manitoba, to help lawyers make a sound decision regarding which business structure fits your situation.

A key mentor in Manitoba is Bjorn (Barney) Christianson (K.C.), a senior practitioner in Portage la Prairie, who acts as the Law Society of Manitoba’s “ad hoc practice management advisor”. He has been an exceptional resource for our little firm and he has been provided guidance as we have grown over the past 10 years.

Barney has done three (3) in-person site visits to our office, providing tips on software tools, staffing and organizational suggestions. He is a regular speaker on these issues and, as a senior practitioner who has seen many firms come and go, he speaks his mind (which we greatly appreciate). As a Mac user, Barney’s suggestions regarding software have also been invaluable. (We use Cosmolex.) For any solo or small firm practitioners in Manitoba, I would strongly urge you to contact Barney directly.

As noted, I have been a business owner for just over 10 years. We are currently in our 3^rd location and I expect we will be in this office for the foreseeable future. (Negotiating our lease is, perhaps, a story for another time.) To date, I have been running the business as a sole proprietor. Ultimately, everything that happens in the office, the good and the bad, is on my shoulders.

Over the years, I have regularly consulted our accountants to determine when (or if) we should transition from sole practitioner to professional corporation. I would recommend that any lawyer who is considering this transition consult with an accountant and/or business consultant and/or any affected party (eg. Spouse). I have been fortunate to have an amazing Director of Operations who has helped me make these key decisions with sound mind. This year (2025), we finally made the decision to switch and I wanted to share the steps we have taken to this goal as well as the reasoning behind the transition.

Benefits of operating as a sole proprietorship:

1. Minimize Accounting/ Bookkeeping Expenses
   1. Under this structure, everything is under the name of the owner. Tax filings are not onerous. Paperwork is relatively easy.
2. Avoid the costs of establishing the Corporation
3. Contributions to RRSP or spousal RRSP and/or TFSAs can reduce immediate and long-term tax costs
4. No requirement to prepare Annual Resolutions, Annual Return to the Companies Office
5. Lower administrative reporting requirements

Benefits of operating as a professional corporation:

1. Corporate tax rates are lower than personal tax rates
2. Mitigate potential liability (more on this point in a future post)
3. Option to receive taxable dividends

From my understanding, there may have been additional benefits to incorporating in the past. CRA has amended many rules that may have limited those benefits. As stated by Barney:

As an aside, when professional corporations were first permitted, many of us hoped to park a lot of income in them and only draw it down when we eventually reduced our working income. It would be a form of pension. CRA has eliminated that as there is a limit on how much idle cash the corporation can sit on.

On our side, the calculation finally made sense to transition this year. Our proposed name (“Clarke Immigration Law Corporation”) has been approved by the Manitoba Companies Office and we have requested consent from the Law Society. We just signed our Articles of Incorporation and we hope to finish the transition to start afresh in 2026. Let me know if you would like an update on this venture. Hopefully, we will continue to serve our clients for many years to come.