Professional Corporations
By ZARAH WALPOLE
Regulated professions are jobs that are governed by legislation. Regulated professionals include lawyers, doctors, nurses and midwives, accountants, vets, social workers, dentists and dental hygienists, chiropractors, massage therapists and optometrists. In the past, regulated professions could not practice their profession in a corporation. If they practiced on their own they had to be sole practitioners and if they practiced in a group they had to be in a partnership. This put regulated professionals at a serious tax disadvantage compared with non-regulated businesses. In Ontario, that has all changed. Those whose jobs are in a regulated profession can now practice in professional corporations.
The chief advantages for practicing through a professional corporation are generally in the realms of tax planning and income splitting. Discussions with your accountant on whether and when it makes financial sense to incorporate as a professional corporation are essential.
Professional Corporations also offer limits on personal liability that, while not as extensive as for the traditional corporation, are nevertheless of value. In traditional corporations, shareholders (the owners) are personally protected from the liabilities of the corporation. In professional corporations, the shareholders (the regulated professionals) remain personally liable for their professional negligence in the same manner as if they were not acting through a professional corporation. However, for non-professional liability claims (such as slip and falls, and financial and commercial claims), it is the corporation who is liable and not the shareholders.
Some of the steps to setting up a professional corporation include:
- Incorporating the professional corporation and ensuring the articles of incorporation are correctly worded.
- Applying for a Certificate of Authorization from the appropriate college, society or other governing body.
- Transferring the existing practice to the professional corporation, ideally on a tax deferred basis.
- Completing all of the associated administrative steps such as setting up a bank account and getting letterhead and business cards with the professional corporation’s name.
There are strict rules about what professional corporations can be named, who can be shareholders, directors and officers, and what business activities can be undertaken by the professional corporation. There are also ongoing requirements to maintain the business’ status as a professional corporation. Creating and maintaining professional corporations can be a technical process but the tax advantages can be significant.
If you are seriously considering starting a professional corporation it is important to talk to a lawyer with experience in creating and maintaining these business entities. You might just find the advantages far outweigh the time and expense involved in creating a professional corporation.
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The above is not intended to constitute
legal advice. Please contact a lawyer to clarify your
legal rights.
