A Comprehensive Guide to Ontario Professional Corporations
Who We Are
Practice Areas
Blog
Contact Us
(416) 777-0100

For many Ontario professionals, incorporating their practice can be an attractive option for several reasons. Professional corporations (sometimes referred to as “PCs”) offer a unique structure that combines the benefits of limited liability with the ability to maintain a professional image.

This blog post serves as a guide to professional corporations in Ontario. It delves into the advantages and drawbacks, outlines the incorporation process, and explores key considerations for professionals contemplating this path.

What is a Professional Corporation?

A professional corporation is a specific type of corporation established under the provincial Ontario Business Corporations Act. Unlike other types of corporations, professional corporations are subject to the requirements outlined in the Ontario Business Corporations Act (also referred to as the “OBCA”), as well as the rules and regulations mandated by their applicable governing body (such as the College of Nurses for Ontario or the Law Society of Ontario). These regulations create specific requirements relating to ownership, professional conduct, and governance within professional corporation structures.

Benefits of Operating as a Professional Corporation

There are numerous advantages to operating as a professional corporation, some of which are described in more detail below:

  • Tax Benefits: Professional corporations offer the potential for professionals to take advantage of certain corporate and personal income tax advantages and other government benefits.
  • Liability Protection: A key benefit of incorporation is limited liability, as a professional corporation generally shields its shareholders from personal liability for the corporation’s debts and obligations. In other words, if your professional corporation is sued or finds itself in financial difficulty, your personal assets (such as your home and vehicle) are typically protected.
  • Enhanced Credibility: Operating as a professional corporation can project a strong professional image and inspire greater confidence among clients, as this corporate structure suggests that you maintain a well-established and organized practice.
  • Growth and Succession Planning: A professional corporation is capable of having many shareholders, allowing others to get involved and take an ownership interest in the business. This is also beneficial when it comes to succession planning, as shares in the corporation can be transferred to new professionals, ensuring the practice’s continuity.

Requirements for Establishing a Professional Corporation

There are specific requirements and steps that a professional must take in order to become a professional incorporation. Thus, it is important to consult with legal and financial professionals to ensure that all steps are correctly completed and are compliant with relevant legislation. Some of the key steps include:

  • Choosing a name: The professional corporation’s name must comply with the strict requirements outlined in the Ontario Business Corporations Act and any additional regulations required by your governing body. The corporation’s name is usually required to contain the professional’s legal name, the professional being practiced (i.e., law, dentistry or medicine) and the words “Professional Corporation.” For professionals seeking to operate their business under a different practice name may be required to file a business name registration.
  • Filing articles of incorporation: In the incorporation process, the articles of incorporation outline the basic structure of the corporation, including the name, share capital, purpose, and initial directors.
  • Obtaining approval from your governing body: Most professional bodies require a practicing individual to obtain their approval before operating as a professional corporation. This process typically involves paperwork and compliance checks to ensure that you meet specific professional and ethical standards.
  • Ensuring ongoing compliance: While a professional corporation must satisfy various requirements in the inception phase, it is crucial for professionals to be aware that they are subject to ongoing compliance obligations, such as annual filings with the government and adherence to the professional regulations set by their respective governing body.

If you have been practicing as a sole proprietor and now wish to operate as a professional corporation, you may be required to complete a section 85 rollover. This allows assets to transfer from a sole proprietorship on a tax-deferred basis. This election allows a taxpayer to defer all or part of the tax consequences typically arising on such a transfer.

Things to Consider Before Incorporating

While professional corporations offer various advantages, there are crucial factors to consider before taking the steps toward incorporation, such as:

  • Costs: Incorporation and ongoing compliance come with associated costs, including filing fees, legal fees and annual corporate maintenance fees, on top of other daily operating expenses.
  • Professional Regulations: Each profession has specific regulations that govern professional corporations operating in that sector. Therefore, it is crucial to thoroughly understand
  • Tax Implications: While tax deferral and other corporate tax advantages can be beneficial, it is important to consult with an experienced accountant who can advise you on the full extent of potential tax implications associated with operating as a professional corporation.
  • Restrictions: The professional corporation must be an Ontario corporation and the individual must only carry on the practice of the specific profession listed.

Final Thoughts on Professional Corporations in Ontario

Deciding whether to operate as a professional corporation is a significant decision for Ontario professionals. However, by carefully weighing the benefits, requirements and considerations outlined in this blog, you can make an informed decision that best suits your needs, goals and financial circumstances. Consulting with a corporate lawyer and accounting professional can also help you become familiar with the legal and financial implications before engaging in the incorporation process. Obtaining professional advice can also help ensure that you are able to navigate the legalities smoothly and maximize the potential benefits of operating as a professional corporation in Ontario.

Contact the Corporate Lawyers at Baker & Company for Advice on Professional Incorporations

The trusted and knowledgeable corporate lawyers at Baker & Company work closely with clients in order to understand their personal and professional goals. Whether you are purchasing a business, or pursuing the path of entrepreneurship for your own business, it is important to understand your present and future rights and responsibilities. At Baker & Company, we help professionals understand their options at every stage, from business planning and tax strategizing to incorporation and succession planning. Contact us at 416-777-0100 or reach out to us online to schedule a consultation with a member of our team and learn how we can assist you.

Have Questions? Contact Us

130 Adelaide Street West, Suite 3300
Toronto, Ontario, Canada
M5H 3P5

Phone: 416-777-0100
Fax: 416-366-3992
info@bakerlawyers.com