A Guide to Professional Corporations In Ontario

September 7, 2022 | By Jana Lambert

Introduction

An Ontario professional corporation is subject to conditions set out in the Ontario Business Corporations Act (the “OBCA”) and the rules and regulations mandated by the governing body of the applicable profession.

A professional corporation is subject to restrictions in the business it is permitted to carry on, the individuals who may be elected or appointed directors and/or officers of the corporation and the individuals who may own shares of the corporation. The professional corporation must also apply to its governing body for a Certificate of Authorization.

Restrictions and Requirements

Although each profession may have slightly different requirements, the following requirements will generally apply:

Name Restrictions

The name of a professional corporation is subject to strict naming conventions.

The OBCA requires that the name of the corporation include the words “Professional Corporation”.
Most governing bodies mandate that the name of the professional corporation must include the professional’s surname as it appears on file with the governing body; may include given names or initials, but does not have to; and must indicate the profession being practiced (i.e. law, medicine, dentistry).

Professionals wishing to operate their business under a different practice name will generally have to file a business name registration.

Jurisdiction

For professionals in Ontario, the professional corporation must be an Ontario corporation. Professional corporations cannot be incorporated federally.

Restrictions on Business

The OBCA mandates that a professional corporation can only carry on the practice of the specific profession, and requires that the following business restriction be set out in the articles of incorporation of the professional corporation:

“the corporation may not carry on a business other than the practice of the profession but this paragraph shall not be construed to prevent the corporation from carrying on activities related to or ancillary to the practice of the profession, including the investment of surplus funds earned by the corporation”

Restrictions on the Transfer/Ownership of shares

The OBCA requires that all of the issued and outstanding shares of the professional corporation be legally and beneficially owned, directly or indirectly, by one or more members of the profession. Doctors and Dentists are the exceptions to this rule. Doctors and Dentists are allowed to issue non-voting shares to family members (i.e. children, parents or spouses). Specific language is required to be included in the articles of incorporation to highlight this restriction.

Restrictions on Directors and Officers

All officers and directors of the professional corporation must be members of the specific profession and must also be shareholders of the professional corporation. Family members who are shareholders of dentistry or medicine professional corporations are not permitted to be officers or directors.

Holding Companies as Shareholders

Each governing body takes a different stance on whether holding companies can be shareholders of professional corporations. The Law Society of Ontario for example, permits holding companies to be shareholders of law professional corporations provided that the business of that holding corporation is restricted and the shareholders, directors and officers of the holding corporation are also lawyers. The College of Physicians and Surgeons of Ontario, on the other hand, does not permit holding companies to be shareholders of medicine professional corporations.

Obtaining a Certificate of Authorization

Once incorporated the professional must apply for a Certificate of Authorization directly through the applicable governing body. A professional is not permitted to practice their profession through a corporation until this certificate has been issued.

As part of the application, you will generally need to:

Provide information about the name of the Professional Corporation and the directors, officers and shareholders;
Provide information about the various practice addresses of the professional;
Upload a copy of the Certificate and Articles of Incorporation for the Professional Corporation;
Upload a recent Corporate Profile Report. This report must be ordered from the Ontario Ministry; and
Pay the applicable fee.

Renewing your Certificate of Authorization

The Certificate of Authorization must be renewed annually. The renewal date will vary depending on the governing body. The renewal process typically involves the following:

Completing the renewal application;
Uploading a current Corporate Profile Report; and
Paying the renewal fee.

What are the Advantages of a Professional Corporation?

There are many advantages to incorporating, a list of which you can find here. Some of the main advantages of incorporating a professional corporation are also listed below.

Tax Benefits

The main reason professionals incorporate is to take advantage of certain tax benefits. With a Professional Corporation, the professional can control the amount of personal income paid to them each year. Professionals will also be able to take advantage of certain tax benefits that are only available to Canadian Controlled Private Companies and their shareholders such as the small-business deduction and lifetime capital gains exemption.

Liability Protection

Unlike non-professional corporations, professionals are not able to shield their personal liability with respect to their professional obligations and professionals will still need to rely on their professional liability insurance to satisfy any claims related to professional misconduct. However, the professional corporation does provide liablity protection for non-professional obligations. For example, if the professional corporation is the tenant on a lease (and assuming no personal guarantees have been provided by the professional), the landlord would only be able to claim against the professional corporation, and not the professional personally, to cure a default for the non-payment of rent.

Growth

A Professional Corporation is capable of having many shareholders. This allows others to get involved, take an ownership interest and become invested in the success and continuation of the business.

Do I need a Section 85 Rollover?

If you have been practicing your profession as a sole proprietor and now wish to operate through a professional corporation, you may need to complete a section 85 rollover. The Section 85 rollover allows the transfer of the assets from a sole proprietorship to a corporation on a tax deferred basis. Accountants may recommend that professionals complete the rollover in connection with the goodwill of their business.