| Please keep in mind that this is not legal advice. The | | | | Ontario. Furthermore, lawyers may not practice law |
| information provided herein is for educational purposes | | | | through a professional corporation until they have |
| only (and is only current to the date this article was | | | | received their Certificate of Authorization from the |
| written). If you believe you require assistance in | | | | Law Society - which entails completing an application |
| deciding which business structure is best for you, then | | | | form and paying an additional fee. |
| you are encouraged to seek a professional. | | | | Continuity |
| In this article, I'll be discussing professional corporations. | | | | Among other things, so long as the directors/officers |
| Some of the biggest advantages to operating a law | | | | of the corporation file the company's annual return and |
| firm through a professional corporation include: | | | | the company is not cancelled for failing to comply with |
| * Tax benefits and tax deferral through the small | | | | tax requirements, the company will survive the death |
| business credit and the lifetime capital gains exemption | | | | or bankruptcy of its shareholders and managers and |
| to qualifying small businesses; | | | | its shares may be perpetually transferred. |
| * The ability to raise capital through a security issuance | | | | Liability |
| (e.g. equity or debt); | | | | Section 3.4(1) of the Business Corporations Act |
| * The prestige factor that goes along with having a | | | | provides that the professional liability of a shareholder |
| "Professional Corporation"; and | | | | of a professional corporation is unlimited under an Act |
| * A lawyer can choose his or her salary and dividend | | | | governing the profession for acts of the shareholders |
| mix in order to minimize tax exposure. | | | | or acts of employees or agents of the corporation. |
| The disadvantages to operating a law firm through a | | | | Importantly, this means that, unlike with typical |
| professional corporation include: | | | | corporations, shareholders of professional corporations |
| * Unlimited liability for the corporate shareholders; | | | | are not immune from unlimited personal liability. |
| * Inability to engage in income splitting via share | | | | Security Interests |
| ownership; | | | | Only individuals who are licensed by the Law Society |
| * Relatively high start-up costs and ongoing | | | | of Upper Canada to provide legal services to the |
| maintenance costs (e.g. accounting, meetings and | | | | public pursuant to a Certificate of Authorization can be |
| minutes, payroll, and taxes); and | | | | shareholders of a professional corporation (Business |
| * Creating and maintaining a separate bank account, | | | | Names Act, s. 3.2(2)1). As a separate legal entity, a |
| letterhead, business and tax numbers, etc. | | | | professional corporation is capable of owning security |
| Definition | | | | interests in other business entities and properties. |
| Ontario's Business Corporations Act "["BCA"]and the | | | | Taxation |
| Law Society of Upper Canada's By-Law #7 govern | | | | A professional corporation may have the best or |
| professional corporations. In the legal context, a | | | | worst tax treatment of all the business organizations |
| professional corporation is a corporation whose | | | | examined (depending on whether net income is |
| shareholders (s. 3.2(1)(1) of the BCA), officers and | | | | reduced down to zero via labour/employment |
| directors (s. 3.2(2)(2) of the BCA), and managers (s. 32 | | | | expenses). On the one hand, if the shareholder |
| of By-Law #7) are licensed members of the Law | | | | lawyers are making more money than they need to |
| Society of Upper Canada. | | | | be comfortable, then they might consider incorporating |
| Ease of Creation | | | | and paying themselves a salary less than what the |
| By and far, a professional corporation is the most | | | | corporation earns so as to defer taxes. On the other |
| onerous - in terms of cost, time, and effort - to create. | | | | hand, the corporation is the only form of business |
| Ontario's Business Names Act provides that "[n]o | | | | organization whose income is double taxed: the |
| corporation shall carry on business or identify itself to | | | | professional corporation's income is taxed and then |
| the public under a name other than its corporate name | | | | whatever retained earnings are distributed to the |
| unless the name is registered by that corporation"(s. | | | | shareholders are taxed again. As discussing the |
| 2(1) of the Business Names Act). | | | | taxation of corporations is long and complicated, I won't |
| A professional corporation must first be incorporated in | | | | be getting into it here. |