[In Canada] There is rarely a tax reason to incorporate, unlike other [countries]. For example, incorporating and paying out dividends will run you just as much tax as running as a sole proprietor. Usually.
To elaborate slightly: The tax system treatment of dividends is set up to make "company produces a profit; company pays corporate income tax; company pays out the rest as dividends; individuals pay personal tax on the dividends" approximately equivalent to "sole proprietorship produces a profit; owner pays personal income tax". Depending on how much other income the owners have, the effective tax rate can be a few % better in either direction -- things don't line up perfectly -- but on average it works out pretty evenly.
There are, however, three common situations where incorporating produces a tax advantage in Canada: 1. If you use the company to "buffer" profits, retaining some of them in good years and paying them out in poor years (either as dividends or salary), in order to keep your personal income in a lower tax bracket (many professional corporations use this approach); 2. If you reinvest profits, since avoiding personal income taxes allows you to compound more effectively; 3. If you sell the company, since capital gains are taxed at a lower rate and in some cases capital gains on the sale of a small business are entirely tax-exempt.
To elaborate slightly: The tax system treatment of dividends is set up to make "company produces a profit; company pays corporate income tax; company pays out the rest as dividends; individuals pay personal tax on the dividends" approximately equivalent to "sole proprietorship produces a profit; owner pays personal income tax". Depending on how much other income the owners have, the effective tax rate can be a few % better in either direction -- things don't line up perfectly -- but on average it works out pretty evenly.
There are, however, three common situations where incorporating produces a tax advantage in Canada: 1. If you use the company to "buffer" profits, retaining some of them in good years and paying them out in poor years (either as dividends or salary), in order to keep your personal income in a lower tax bracket (many professional corporations use this approach); 2. If you reinvest profits, since avoiding personal income taxes allows you to compound more effectively; 3. If you sell the company, since capital gains are taxed at a lower rate and in some cases capital gains on the sale of a small business are entirely tax-exempt.
Of course, I am not a Canadian Tax Lawyer, etc.