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Professional Corporations

Prior to the end of 2001, professionals could not incorporate their practices except as allowed by the laws that regulated their specific profession (all compliant professional corporations prior to the enactment of the present governing regime were grandfathered in).  Today, regulated professionals are able to incorporate their practices.  Thanks to Bill 152 – Balanced Budgets for Brighter Futures Act, and Bill 45 – Responsible Choices for Growth and Accountability Act, professionals can capitalize on many of the same tax and non-tax advantages enjoyed by other incorporated self-employed individuals.

However, unlike other incorporated self-employed individuals who are unregulated professionals, personal professional liability will not be limited through incorporation.  The shareholders of a professional corporation are restricted to licensed members of the same regulated profession, and depending on the profession, their immediate family members.  For those applicable professions, family members who are not licensed under the same regulated profession are restricted to participating only as non-controlling or non-voting shareholders.  The regulated licensed or registered professionals must be the only voting or controlling shareholders and/or directors and officers of the professional corporation.   The professional corporation’s articles of incorporation must restrict its business to only the practice of that profession and activities that are related or ancillary (such as the investment of retained earnings).  Furthermore, the regulated professional’s governing body (e.g. Law Society of Upper Canada, The College of Physicians and Surgeons of Ontario, Royal College of Dental Surgeons of Ontario etc…) will be responsible for the certification or licensing of professional corporations that fall under their governance and jurisdiction/territory. And hence, the governing body for that regulated professional will be able to “look through” professional corporations and hold the regulated professional shareholders accountable for their actions or omissions.  Other requirements are that the name must include the words “Professional Corporation” or “Société Professionnelle”, undivided, and cannot be a number name.  As well, the governing body may impose additional regulations requiring the specification of the practice for that regulated profession such as “Medicine” or “Dentistry” before the words “Professional Corporation”, and the surname of one of the regulated professional shareholders of the professional corporation.  Finally, most governing bodies charge an annual renewal fee as well as a one-time application fee when applying to obtain a certificate of authorization.  Otherwise, professional corporations are incorporated just like any other provincially incorporated company, subject to the restrictions on business and transfer of shares provisions in the articles, and naming requirements.

Just like any other corporation, shareholders can transfer or sell their shares to others so long as the transferees or purchasers are licensed or registered members in good standing with the same regulated profession as the seller(or if allowed by the regulations of the particular regulated profession, they are licensed or registered members in good standing with the same regulated profession and sole-shareholders of the transferee or purchaser holding company restricted to the business of holding shares in the professional corporation).  Furthermore, just like any other legal enterprise, a professional corporation can hire employees regardless of their profession (so long as they are not shareholders or that their remuneration entitles them to shares, unless they are members of the same profession) or enter into independent contractor arrangements.  Professional corporations can be partners in General Partnerships (GPs) or Limited Liability Partnerships (LLP).  Furthermore, income earned through the practice of the profession in a professional corporation will be considered active business income and eligible for the Small Business Deduction lower tax rate on the first $500,000 (as of 2012 for tax years after 2008).  Generally, corporate tax rates are lower than individual personal tax rates for the higher tax brackets, and thus tax savings through deferral and thus access to cash flows, are available when money is left in the professional corporation.  When selling the practice, more specifically, the shares of the professional corporation that owns the practice, the selling shareholder can use their lifetime capital gains exemption so long as the practice is a qualified small business corporation.  This can be achieved by ensuring that prior to selling; surplus assets are removed/drawn from the professional corporation.  The lifetime capital gains exemption allows the seller up to $750,000 in capital gains tax-free, before being taxed as taxable capital gains income.  For incorporating and setting up your professional corporation, tax advise and/or estate planning, contact Jeff Levy at Levy Zavet PC for a free consultation.

Currently, the following is a list of regulated professions that would be eligible to practice through a professional corporation:

  • Chartered Accountants under the Chartered Accountants Act;
    • Application Fee: $180 in Ontario plus HST as of 2012;
    • Only CAs can be shareholders/officers/directors;
    • Holding companies for the shares in the professional corporation are not permitted;
    • Restricted to the business of chartered accountants;
  • Certified general accountants under the Certified General Accountants Association of Ontario Act;
  • Lawyers under the Law Society Act (responsibility of the Ministry of the Attorney General);
    • Application Fee:  $250 in Ontario plus HST as of 2012;
    • Only Lawyers or Paralegals or a combination (multi-discipline)  can be shareholders/officers/directors;
    • Holding companies for the shares in the professional corporation are permitted so long as the business in the articles of the holding company is restricted to the holding of the shares of the professional corporation, and the shareholders of the holding company are licensed lawyer(s) and/or paralegal(s) in good standing;
    • Restricted to the business of the practice of law and/or the provision of legal services;
  • 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);
    • Application Fee:  $350 (inclusive of HST) in Ontario as of 2012 for Physicians and Surgeons, and $750 (inclusive of HST) for Dental Surgeons;
    • Name must include “Medicine” for physicians and surgeons, and Dentistry for dental surgeons, together with the surname (last name) of any one or more of the regulated professional shareholders;
    • Only physicians and surgeons, or in the case of dentists, dental surgeons, can be directors and/or officers of the professional corporation;
    • Only physicians and surgeons, or in the case of dentists, dental surgeons, can be voting shareholders.  Family members of the regulated professional shareholders can be non-voting shareholders.  Trustees in trust for children of the regulated professional shareholders who are minors can be non-voting shareholders.  Family member means the regulated professional shareholder’s spouse, child or parent.;
    • Holding companies for the shares in the professional corporation are not permitted;
  • 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).

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