Incorporation Services
Professional Corporations
Background
In the 2000 Ontario budget, the government announced its intention to allow
regulated professionals to incorporate their practices.
Professional incorporation does confer many of the same tax and non-tax
advantages enjoyed by other incorporated self-employed individuals.
However, professional liability is not limited through incorporation and
shareholders of professional corporations are restricted to members of the same
profession.
Provisions allowing regulated professionals to incorporate were included in Bill
152, Balanced Budgets for Brighter Futures Act, which received Royal Assent on
December 21, 2000. Technical amendments to these provisions were made
through Bill 45, Responsible choices for Growth and Accountability Act, which
received Royal Assent on June 29, 2001.
Proclamation of the relevant provisions of both Bills on November 1, 2001,
combined with the necessary regulations or by-laws under the governing Acts
affected professions once finalized did enable regulated professionals to
incorporate their practices.
Professions Affected by Professional Corporation Provisions
Members of the following professions are 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).
Prior to the enactment of this legislation, professionals were prohibited from
incorporating their practices except as specifically permitted by the statute
regulating the particular profession.
The status of corporations that were in compliance with the law before the
coming in force of the professional corporation amendments would therefore, be
unchanged.
Key Features of Professional Corporations
Ensuring professional liability is not limited by incorporation:
In general, the corporate form insulates shareholders in their personal capacity
from corporate liability. The professional corporation provisions ensure
that personal professional liability of those professionals who choose to
operate their practices through a professional corporation is not limited.
Role of professional governing bodies:
The governing bodies of regulated professions will be responsible for the
certification or licensing of professional corporations that fall under their
jurisdiction. In addition, the governing bodies will be able to "look
through" professional corporations and hold the professional shareholders
accountable for their actions.
Naming a professional corporation:
Professional corporations are typically required to use the name of the
profession as part of the corporate name. They are also required to have
the words "Professional Corporation" as part of its legal name.
Business activities which can be undertaken:
The professional corporation may not carry on a business other than the practice
of the profession; however, this shall not be construed to prevent the
corporation from carrying on activities that are related to, or ancillary to,
the practice of the profession, including the temporary investment of surplus
funds earned by the corporation.
Ownership restrictions for professional corporations:
The professional incorporation legislation allows one or more members of the
same profession to be shareholders in a professional corporation. All
officers and directors of the professional corporation are required to be
shareholders of the corporation.
Exception to ownership restrictions - Health Professional Corporations.
Effective January 1, 2006, new legislation came into force, which allows family
members to hold non-voting shares of :
-"Dentist" Corporation
-"Physician" Corporation
"family member" means, in relation to a shareholder
of a health profession corporation, the shareholder's
spouse, child or parent.
Physician Corporations and Dentist Corporations are both exempt from the
application of paragraph 1 of subsection 3.2(2) of the Business Corporations Act
and, in lieu of that paragraph the following rules apply:
1. Each issued and outstanding voting
share of the corporation shall be legally and beneficially owned, directly or
indirectly, by a member of The College of Physicians and Surgeons of Ontario, or
The Royal College of Dental Surgeons of Ontario.
2. Each issued and
outstanding non-voting share of the corporation shall be owned in one of the
following ways:
It shall be legally and beneficially owned, directly or indirectly, by a member
of the College of Physicians and Surgeons of Ontario or The Royal College of
Dental Surgeons of Ontario.
It shall be legally and beneficially owned, directly or indirectly, by a
family member of a voting physician or dentist shareholder.
It shall be owned legally by one or more individuals, as trustees, in trust for
one or more children of a voting physician or dentist shareholder who are minors,
as beneficiaries.
Period of Existence
A professional corporation has a less stable business life than a business
corporation due to the dependence on its members. For example:
The death or disqualification of a shareholder or employee may result in the
dissolution of the corporation.
If a licensed officer, shareholder, agent, or employee of a professional
corporation becomes disqualified to provide professional services, he or she
must sever all employment with and financial interest in the corporation.
Failure to comply may be grounds for forfeiture of the corporation's certificate
of incorporation and dissolution.
A professional corporation must report the death of a shareholder to the
appropriate professional body within 30 days of the date of death. Within
one year, all shares owned by the deceased shareholder must be acquired by the
professional corporation or by persons qualified to own them.
A professional body may suspend or revoke the certificate of registration of the
professional corporation if:
a.) The corporation fails
to remove or discharge an officer, director
shareholder, or employee whose license to practice is suspended or
revoked.
b.) The Professional
Corporation has failed to comply with the
provisions of the Professional Corporation Act or the regulations of the
professional body.
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