- Limited Liability—With Major Exceptions: In most standard corporations, shareholders are shielded from personal liability for business debts and legal actions—the corporation itself is liable. However, in professional corporations, this shield does not cover acts of professional negligence or malpractice. Individual professionals remain personally responsible for their own errors, even if their practice is incorporated.
- Insurance Requirements: Because incorporation doesn’t remove liability for professional misconduct, maintaining robust professional liability insurance is critical, regardless of the corporate structure. This ensures claims for malpractice or negligence are covered.
- Governing Body Rules: The extent of liability is often defined by the statute and the profession’s regulatory body. For most professions in Ontario, shareholders (who must be licensed professionals) are jointly and severally liable for professional errors committed by themselves or by employees under the corporation’s name.
- Tax and Succession Benefits: While PCs provide potential tax advantages and make succession planning easier, they do not protect assets against professional liability claims. Selling or transferring shares is structured for tax efficiency, not as a liability shield.
- Multi-Level Structures: Some firms set up combinations, e.g., limited liability partnerships (LLPs) with PCs as partners, to further manage liability and gain tax benefits. LLPs can shield partners from the malpractice of other partners, while PCs offer some business-related liability protection and flexibility for ownership and income splitting.
In short, professional liability means that even with a corporation, licensed professionals must personally answer for their work. The main impact on corporation structure is the requirement to build in insurance, compliance practices, and consider liability not just for financial risks, but for direct professional conduct as well.
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