Running a business in Ontario comes with many rewards, but it also brings risks, especially when it comes to protecting your personal assets. One of the most effective strategies for shielding your personal wealth from business related risks is to incorporate your company. While incorporation isn’t a foolproof solution, it offers substantial protection and is widely recognized as the best available method for limiting liability in Ontario.

What is Limited Liability?

A corporation is a distinct legal entity, separate from its owners. This separation is the foundation of “limited liability,” a core principle in corporate law. When you incorporate, the corporation itself assumes responsibility for its own debts, obligations, and liabilities. As a result, the personal assets of the corporation’s shareholders such as their homes, vehicles, and personal bank accounts are generally insulated from claims made against the business. This legal distinction means that, in most circumstances, creditors or plaintiffs can only pursue the assets held by the corporation, not those belonging to individual shareholders or directors.

This structure provides significant peace of mind for business owners, as it limits their financial exposure to the amount they have invested in the company. For example, if the corporation is unable to pay its suppliers or loses a lawsuit, usually, only the corporation’s assets are at risk of being used to satisfy those debts or judgments. The personal wealth of the shareholders remains protected, except in specific situations.

Limitations and Exceptions to Limited Liability

While incorporation offers strong protection, it’s important to understand its limitations. Certain obligations, particularly those owed to the government, can ‘pierce the corporate veil’. Directors of a corporation may be held personally liable for unpaid government remittances, such as payroll deductions and corporate taxes. This means that if your corporation fails to remit these amounts, the government can pursue directors individually.

Additionally, when negotiating leases, landlords often require a personal guarantee from the principal of the company. This is a common practice, and it means that even if your business is incorporated, you may still be personally responsible for lease obligations if the corporation defaults.

Conclusion

Incorporation remains the most effective way to limit personal liability for business owners in Ontario. In the event that you’re interested in incorporating you should speak to a lawyer about the cost associated with it versus the advantages from a liability perspective.

Written by Heather Dixon and Wyatt Shipley

Updated August 28, 2025. Originally posted November 15, 2018.