A professional corporation (PC) in Ontario is a legal structure available to certain regulated professionals who wish to incorporate their practice. Unlike standard business corporations, professional corporations are subject to specific rules under the Ontario Business Corporations Act (OBCA) and additional regulations set by each profession's governing body (such as the College of Physicians and Surgeons or the Law Society of Ontario).
Who Can Start a Professional Corporation in Ontario?
Only licensed members of regulated professions can start a professional corporation. Eligible professions include:
- Lawyers
- Dentists
- Physicians and surgeons
- Chartered accountants
- Veterinarians
- Engineers
- Social workers and social service workers
- Other health professionals regulated under provincial law such as Ontario’s Regulated Health Professions Act.
Major Features and Differences
Ownership and Shareholding
- Generally, control and management must remain within the licensed members of the profession. And while in certain cases non-professionals can be shareholders in a professional corporation, they cannot hold voting shares.
- The corporation’s name must include the professional’s surname, profession, and the words “Professional Corporation”, following strict naming conventions.
Purpose and Activities
- A professional corporation may only offer services within its regulated profession. Other unrelated businesses are not permitted, though related activities like investment of surplus funds are allowed.
- The corporation must apply for and maintain a Certificate of Authorization from its governing body.
Legal and Regulatory Oversight
- Professional corporations are governed both by general corporate laws and by profession-specific rules enforced by regulatory bodies.
- The creation and operation of a PC must comply with professional standards and codes of conduct specific to the profession.
Liability
- Shareholders receive limited liability protection for many corporate debts and obligations, but not for professional malpractice; the individual professional remains personally responsible for professional errors and omissions.
Tax Benefits
- Similar to standard business corporations, PCs may provide potential tax advantages, such as income tax deferral or reduced corporate tax rates compared to personal tax rates. This allows professionals to reinvest surplus income.
- Shareholders pay personal income tax on dividends, similar to other corporations.
Formation Process
- Choose a Name: Must comply with the OBCA and governing body rules, often including the professional’s surname and the profession practiced.
- Incorporate: File articles of incorporation with the Ontario Business Registry or through a service provider such as SkyLaunch, ensuring only eligible professionals hold shares and directorships.
- Obtain Authorization: Apply to the relevant regulatory body for a Certificate of Authorization; necessary for lawful operation.
Read more about the rules and regulations around naming PCs here!
Restrictions and Considerations
- Professional corporations have strict rules regarding ownership, directorship, and permitted activities than standard business corporations.
- All shareholders and directors must maintain good standing with their professional regulatory body.
- PCs are provincially incorporated; federal corporation status is not an option for professionals in Ontario.
Conclusion
Professional corporations in Ontario serve licensed professionals by combining corporate benefits with regulatory oversight specific to their field. PCs offer tax planning opportunities, limited liability for business debts, and flexibility in wealth management, while maintaining strict requirements for professional conduct, ownership, and practice activities.
Additional information regarding law PCs can be found here.
Additional information regarding dentistry PCs can be found here.
