Professional corporations (PCs) are businesses set up by individuals in a professional practice such as accountants, lawyers, dentists, medical doctors, veterinarians, etc. In Ontario, PCs are governed by the Ontario Business Corporations Act (OBCA) as well as the governing body of the respective profession which must issue a Certificate of Approval in order for the professional can be begin practicing in a Professional Corporation.
Professional corporations have only been permitted in Ontario since 2001 and many professionals do not know how professional corporations work. It is worth noting that there can be significant tax advantages to establishing a professional corporation and it is worth looking into.
Professional corporations have some significant advantages, especially in terms of tax rates. PCs can benefit from the small business dedication in Ontario whereas professionals who do not set up a corporation are taxed at the personal rate (nearly 30% higher).
There are some restrictions on establishing professional corporations as well. One of these is who can be a shareholder of the company. You need to check with your professional association to see if officers and directors of the professional corporation can only be members of the profession, or if there are opportunity for spouses and family members to also be shareholders. This becomes important when considering income-splitting opportunities.
There are expenses in establishing a professional corporation with both the government and the professional organization. Accounting fees are more for incorporated paperwork, and there are more paperwork requirements including a corporate tax return and annual financial statements.
To see if you would benefit from being set up as a professional corporation, you should speak to a lawyer who has corporate expertise in this area. You may benefit from this immediately, or could grow into a professional corporation over time. Either way, it is good to know whether you are capitalizing on all the tax and legal advantages that are possible as a professional in business.
This article appeared in Ottawa Valley Business.
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