Many professionals in British Columbia have the ability to operate as a professional corporation. Generally only those professionals that are governed by a professional body or association will be allowed to incorporate. These typically include physicians, dentists, veterinarians, lawyers, accountants, engineers and architects.
In most respects a professional corporation is like any other corporation with the main distinction that professional corporations are often subject to additional rules and restrictions. These rules and restrictions tend to be imposed by the same organizations that set requirements to enter the profession, establish standards of practice and regulate the practice of their members. For that reason, members of professional organizations who decide to incorporate must consider the specific by-laws of their governing body, including naming criteria, company requirements, and reporting conditions.
Rules regarding incorporation will differ among each profession, however, normally the restrictions will relate to the following non-exhaustive list:
• Company name requirements;
• Ownership of voting shares and non-voting shares;
• Restrictions on directors and officers;
• Reporting initial shareholders and changes; and
• Consequences of default.
For instance, compare the corporation name requirements for doctors and lawyers in British Columbia. A requirement for doctors wishing to incorporate is that they must include “Professional Corporation”, “Corporation”, “Corp.”, “Incorporated”, “Inc.”, “Unlimited Liability Company” or “ULC” in its company’s name. However, a lawyer must decide between only “Law Corporation” and “Personal Law Corporation” when deciding upon a company name.
Despite the hurdles, it is often advantageous to incorporate your professional corporation for tax purposes, estate planning and creditor protection. Professional corporations benefit from the same tax advantages non-professional corporations enjoy. The main advantage is the ability of a corporation to defer taxes by retaining income in the corporation at corporate tax rates which are normally lower than the professional’s personal tax rates. Additionally, the incorporated professional will have the benefit of deciding between salary and dividends. Income as salary may be beneficial as one may wish to make maximum contributions to a registered retirement savings plan and Canada Pension Plan. Conversely, dividends may be preferred over a salary if the professional has a cumulative net investment loss and is seeking to claim the capital gains exemption.
Our business lawyers at Kerfoot Burroughs LLP are experts in incorporating a range of professional corporations, and we would be happy to assist you in navigating the incorporation process and ensuring that your company is properly maintained.
If you are a professional who requires assistance with incorporating or filing renewals or returns for a professional corporation, please contact Ian Burroughs.