A professional corporation is just one of many business forms available in Canada. However, as the name suggests, the professional corporation was created to serve the needs of – you guessed it – professionals who want to form a business group with other professionals. The main limitations are that the professionals who form a professional corporation must belong to the same profession and that the profession in question must be licensed by formal regulating bodies that are responsible for the licensing or certification of the professionals in question. The business form offers advantages over other business arrangements, such as a partnership. While many of these advantages involve taxation, protection from liability is also a consideration.
Who Can Form a Professional Corporation?
Membership in a professional corporation is limited to members of the same regulated profession. The appropriate governing body is responsible for licensing or certifying the members of a professional corporation who are subject to their authority and remain free to hold those members accountable for their professional actions. A professional corporation can consist of one or more practitioners of the same profession, and all officers and directors of the professional corporation must be members – known as shareholders – of the corporation.
Those who can form a professional corporation in Ontario include:
- Doctors or other health care professionals who fall under the Regulated Health Professionals Act
- Social workers and other social service workers
The services a professional corporation can offer are limited to those services permitted by the regulating body for that profession.
What are the Advantages of a Professional Corporation?
There are a number of advantages to operating as a professional corporation, either on your own as the sole shareholder of a P.C. or as a shareholder with other members of your profession. Unlike a partnership, where you share responsibility for the organization’s debts, you do not have personal liability for any corporate liability. Should the corporation incur operating debts – staff salaries, business supplies, and the like – that it ultimately is unable to pay, the corporation bears that burden, not the individual shareholder, just as the stockholder of a publicly traded company is not responsible for the debts incurred by that company. Even as a shareholder of a professional corporation, though, you remain liable for your personal professional negligence.
- Tax deferral. By withdrawing less than your full share of corporate earnings, you can avoid the higher rate on personal income in favor of the lower corporate tax rate, deferring income until you are in a lower tax bracket.
- Income splitting. You also can pay out some of your share of corporate earnings as salary to family members in lower tax brackets, lowering overall tax liability.
- Taking income as dividends, paying the lower rate on dividends as opposed to income.
If You are Considering Forming a Professional Corporation, Talk to Beganyi Professional Corporation
If you are a professional contemplating forming some kind of business organization, talk to a business and taxation law attorney. Beganyi Professional Corporation can give you the advice and guidance you need. If you are in the greater Toronto area, including Mississauga, Brampton, Oakville, Hamilton, and Milton, talk to the professionals of Beganyi Professional Corporation.