What is a Professional Corporation?
Prior to 2000, professionals such as Chartered Accountants and dentists were not allowed to incorporate their practises. This changed in the 2000 Ontario Budget when the Ontario government announced its intention to allow regulated professionals to incorporate their practices.
A professional incorporation (P.C.) allows many of the same tax advantages enjoyed by other incorporated self-employed individuals with two very important differences:
- professional liability is not limited through incorporation; and
- shareholders of a P.C. are restricted to members of the same profession – this takes away the strategy of income splitting by having family members hold shares of the P.C. unless they are members of the same profession
Role of Governing Bodies:
The governing bodies of regulated professions are responsible for the certification and licensing of professional corporations that fall under their jurisdiction. In addition, the governing bodies will be able to pierce the corporate veil of a P.C. and hold the professional shareholders accountable for their actions.
Naming a Professional Corporation:
The name of the professional corporation must include the words “Professional Corporation” and cannot be a numbered company.
Share Ownership Restrictions
The professional incorporation legislation allows one or more members of the same profession to be shareholders in a P.C. All officers and directors of the professional corporation are required to be shareholders of the corporation.
Business Activities Undertaken:
The P.C. may not carry on a business other than the practice of the profession.
Members of the following professions would be eligible to operate a professional corporation:
- Chartered accountants under the Chartered Accountants Act; certified general accountants under the Certified General Accountants Association of Ontario Act; and lawyers under the Law Society Act (responsibility of the Ministry of the Attorney General).
- Audiologists, chiropodists including podiatrists, chiropractors, dental hygienists, dental surgeons, dental technologists, denturists, dieticians, massage therapists, medical laboratory technologists, medical radiation technologists, midwives, nurses, occupational therapists, opticians, optometrists, pharmacists, physicians and surgeons, physiotherapists, psychologists, speech language pathologists, and respiratory therapists under the Regulated Health Professions Act (responsibility of the Ministry of Health and Long-Term Care).
- Social workers and social service workers under the Social Work and Social Service Work Act (responsibility of the Ministry of Community and Social Services).
- Veterinarians under the Veterinarians Act (responsibility of the Ministry of Agriculture, Food and Rural Affairs).
Establishing a Professional Corporation
Regulated professionals who wish to incorporate their practices should consult the Companies Branch of the Ministry of Consumer and Business Services for Ontario incorporation requirements, and their governing body for conditions of incorporation specific to their profession.
This post is for information purposes only and should not be interpreted as tax advice or a legal opinion. Please consult with us to review your own particular circumstances.
© Copyright Jenny Lin, 2010.