Starting a business brings many questions, especially about legal structures. Did you know that professional corporations can offer significant benefits for licensed professionals? This article will guide you through setting up and managing a professional corporation.

Key Takeaways

• A professional corporation offers benefits like limited liability protection, tax savings, and improved credibility.
• Only licensed professionals can form these corporations. This includes doctors, lawyers, and dentists.
• Forming a professional corporation involves filing various documents and paying fees. Annual reports are also needed to stay compliant.
• Different professions have unique rules and benefits when forming a corporation. These include special rules for medical practices and legal firms.

Defining a Professional Corporation

A professional corporation is a type of business for licensed professionals. They must follow rules from both the government and their profession’s board.

Who can form a professional corporation?

Licensed workers in Ontario can form a professional corporation. This includes doctors, lawyers, nurses, pharmacists, dental hygienists, and dentists. They must use their legal name and job in the company’s name. The term “Professional Corporation” should also be included.

Approval from a governing body is required. These workers need to practice only in their listed profession within Ontario.

Legal framework and regulations

In Ontario, professional corporations offer a way for licensed professionals, including lawyers, doctors, dentists, nurses, dental hygienists, and pharmacists, to practice within a corporate structure while adhering to regulatory guidelines specific to their field. These corporations are subject to distinct laws and rules that ensure they operate according to the standards of their respective professions.

The Ontario Business Corporations Act (OBCA) primarily governs the creation and operation of professional corporations in Ontario. Under the OBCA, a professional corporation must be incorporated or continued under this legislation and possess a valid certificate of authorization from the corresponding regulatory body to provide a certain professional service in the province. This certificate outlines the conditions and limitations within which professional corporations must operate.

When establishing a professional corporation, one or more individuals licensed to practice law in Ontario can form the entity. The corporation’s articles of incorporation must include specific clauses that restrict share ownership to licensed professionals. Every share issued and outstanding must be owned both legally and beneficially by individuals who are licensed to practice that specific profession in Ontario. This ensures that the control and ownership of the corporation remain within the professional sphere.

Incorporating a professional corporation is similar to incorporating a traditional corporation but involves additional steps specific to the legal profession. These include obtaining a certificate of authorization from the corresponding regulatory body, which requires the corporation to meet certain criteria and follow the regulatory body’s regulations. The articles of incorporation must align with the OBCA and industry-specific rules, reducing the likelihood of needing amendments later.

One notable advantage of professional corporations is the potential for tax benefits. Through income splitting and tax deferral, professionals may reduce their tax burden significantly.

Furthermore, forming a corporation provides a more formal business structure, potentially boosting the practice’s credibility and reputation.

However, professional corporations also come with challenges. These entities are subject to stringent regulatory oversight, and failing to comply with the rules can lead to penalties or the loss of the certificate of authorization. Additionally, while the corporate structure may offer some advantages, professionals remain personally liable for professional negligence, meaning that their liability is not limited by the corporation.

Conclusion

Setting up a professional corporation in Ontario involves navigating complex legal and regulatory requirements. Proper planning and compliance with the OBCA and corresponding professional regulatory body guidelines are crucial. Seeking advice from legal and accounting professionals can help ensure adherence to these regulations while maximizing the benefits of a professional corporation.

Hadri Law in Toronto is here to help. We guide businesses through every step, making the process smooth and easy. Choose Hadri Law for trusted advice and support.