A health profession corporation differs from a standard business corporation. It is governed by two separate sets of rules, both of which apply at all times. Understanding this distinction is essential before filing.
Many Ontario physicians, dentists, and other regulated health providers incorporate for tax and planning benefits. However, compliance is more complex than most expect, which often leads to issues.
Below are key points to understand before incorporating, as well as common oversights after incorporation.
What a health profession corporation actually is
Under Ontario law, a health profession corporation is a corporation authorized to carry on the practice of a regulated health profession. It is governed by both the Ontario Business Corporations Act and the legislation specific to your regulated profession.
This dual governance is critical. The Ontario Business Corporations Act governs corporate structure, including articles of incorporation, share register, directors, officers, and required formalities. Your regulatory college determines who may hold shares, naming requirements, and whether the corporation is authorized to provide health services.
Your regulatory college continues to govern professional conduct and the operation of the corporation. Both sets of rules apply at all times, and neither takes precedence over the other.
Why providers incorporate
The primary reason is tax deferral. Corporate income is taxed at the small-business rate, which is lower than Ontario's top personal rate. Retaining income in the corporation defers personal tax until it is paid as salary or dividends. For practices with income exceeding personal needs, this deferral can compound significantly over time.
Additional planning opportunities include holding life insurance within the corporation and structuring retirement income. Income splitting with family members is now more restricted under the 2018 federal Tax on Split Income rules, so review this with an accountant before proceeding.
Some providers expect full liability protection from incorporation. While there is some business-side protection, professional liability for clinical negligence remains. College regulations and malpractice coverage address this separately.
Tax deferral and planning are the main incentives for most providers, offering significant long-term advantages.
The college rules that trip people up
Each regulatory college in Ontario sets its own requirements for health profession corporations, which vary by profession. Physicians are governed by the College of Physicians and Surgeons of Ontario, dentists by the Royal College of Dental Surgeons of Ontario, and other professions by their respective colleges, each with unique rules and forms.
Most compliance problems arise from four main issues.
Share ownership: College rules restrict who may hold shares. Typically, only regulated members may hold voting shares, while permitted persons, such as spouses and children, may hold non-voting shares, depending on the college. Adding an ineligible shareholder based on assumptions creates a compliance issue that must be resolved.
Share structure: The articles of incorporation must align with your college’s requirements. Addressing this at the outset is much easier than making changes after the practice is operating.
Corporate naming: Most colleges require the corporation’s name to include a specific designation, such as “Medicine Professional Corporation” or “Professional Corporation,” and often the name of one or more regulated members. Non-compliant names must be changed.
The certificate of authorization. This is the step that catches the most owners off guard. A heCertificate of authorization: A health profession corporation cannot provide health services until the relevant college issues a certificate of authorization. Operating before receiving this certificate is non-compliant.s without a shareholders’ agreement has an incomplete structure. The articles of incorporation and the Ontario Business Corporations Act define the outer framework. The shareholders’ agreement fills in what actually happens between co-owners when something goes wrong.
A shareholders’ agreement covers daily governance, owner exits, share transfers, events such as death or disability, and dispute resolution. Without one, these issues become urgent and costly to resolve.
Neither the articles nor college requirements address these matters. Only a shareholders’ agreement does, and omitting it is a common mistake for practices of all sizes.
PHIPA travels with the practice
Incorporation does not change your privacy obligations under the Personal Health Information Protection Act. Your status as a health information custodian remains, and PHIPA applies to all personal health information activities, regardless of corporate structure.
Privacy policies, patient consent, breach notification, and access rights still apply as they would for a sole proprietorship. Incorporation does not create a separation between clinical and business privacy obligations. PHIPA requirements continue to apply to the corporation.
The mistakes that come up most often
A few patterns appear consistently.
Several common patterns emerge.
Treating a health profession corporation as an ordinary business corporation is a common mistake. While structures may appear similar, compliance requirements differ. Share ownership restrictions, naming rules, and the need for a certificate of authorization are unique to health profession corporations. Setting up a general business corporation for a professional practice is incorrect.
Omitting a shareholders’ agreement is another frequent error. The articles and college requirements define share ownership and corporate activities, but only the shareholders’ agreement addresses co-owner relations during disputes. Both are necessary, and failing to have an agreement often leads to greater costs later.
Relying on assumptions about college requirements is risky. College rules change over time, and advice from colleagues may be outdated. Always consult the current published requirements from your regulatory college.
Before you file anything
Incorporating a health profession corporation in Ontario requires compliance with the Ontario Business Corporations Act, college requirements, PHIPA, and tax planning. Filing is only a small part of the process.
Before incorporating, review your college’s requirements, intended share structure, and the need for a shareholders’ agreement. Addressing these issues early is straightforward; correcting them later is far more costly.
I regularly assist with these matters. If you would like to discuss your situation, please contact me at https://beganyi-law.com/contact.
