Professional Corporations (PC) have been around in Ontario since 1990. In the past, professionals like doctors, lawyers, dentists were not allowed to incorporate by their respective associations.
There were some revolt and discontent among the professionals. Eventually, they were given the right to do so but under certain conditions. Here is the list of the most common questions that we get asked:
What professionals are allowed to incorporate in Ontario?
- Chartered Professional Accountants
- Lawyers
- Veterinarians
- Health Professionals (Physicians, Surgeons, Psychologists, Dentists, Chiropractors, Chiropodists)
- Social Workers and Social Service Workers
I work as one of these professionals for a company. Can I use a PC?
No. Similar to use of other corporations, if your relationship is in substance an employee-employer relationship, you will be deemed to have a “personal service business”. That means that most of the business deductions will be disallowed and the corporation will be taxed at the maximum corporate tax rate.
Can Real Estate Agents use a PC?
No. Real Estate Agents are not allowed to incorporate in Ontario.
What legal protections will I have?
PC are specifically not protecting the professionals from malpractice liability. They may protect you from certain creditors and loan collectors if there was no personal guarantee provided at the time of the loan initiation. Similar to other corporation, a PC can also protect you against general liability (e.g. slip & fall, bodily injury etc.).
What are some of the advantages of having a PC?
- Opportunity for tax deferral. Similar to other corporations, you will pay a lower tax rate on the first $500,000.
- Non-deductible expenses are less expensive (e.g. life insurance, 50% of meals and entertainment, club dues)
- Protection from creditors (unless you signed personal guarantees)
- Ability to establish pension funds
What are some of the disadvantages of having a PC?
- Initial work involved in transferring the assets to the corporation
- Unlimited professional liability
- It is a separate legal entity that requires separate set of accounting and tax records.
- You will have to include “Professional Corporation” in the name of your business on all official communication
- Taking funds out of the corporation requires planning and paperwork
- Restrictions on use of holding companies and trusts
Should I incorporate into a PC?
In our opinion, if you are a professional who has the ability to incorporate your practice, you should be using that privilege. There is no additional risk involved in incorporating your practice. The advantages such as tax deferral opportunity outweigh additional paperwork required.
How can I incorporate?
If you are one of the listed professionals, then you will have to obtain approval and authorization from your provincial governing body. Once that the approval and requirements are obtained, we will be able to incorporate your practice in Ontario.
