For many professionals, incorporating and operating through a professional corporation can have various tax benefits. In British Columbia, there are a number of professions who may be permitted to do so, to name a few:
- Massage Therapists;
- Physicians and Surgeons;
- Real Estate Agents;
Each of these professions will have specific incorporation requirements set out by their respective governing bodies.
What are the benefits of operating through a professional corporation?
The decision to proceed with a professional corporation is typically based upon tax and accounting benefits. In some cases, it will provide the opportunity to split income with a spouse as well as the ability to defer personal income to a future year if not all income is required in a particular year.
Does establishing a professional corporation protect me from professional liability?
In most cases, operating through a professional corporation does not protect from liability arising as a result of your performance as a professional. However, this is an important discussion to have with your lawyer when establishing your professional corporation to determine your potential liabilities.
What is the process of establishing a professional corporation?
Each profession has a specific set of rules and regulations applicable to the incorporation and maintenance of a professional corporation, the specific requirements must be reviewed in each case to ensure compliance. However, for example, a common requirement is a restriction on the shareholders and directors of the professional corporation such that only immediate family members can hold shares.
Once a decision has been made to incorporate a professional corporation, there are a number of steps that are often required by each regulating body (although not always in the order below) including, but not limited to, the following:
1) Following name requirements with respect to the professional corporation. Many professional regulatory bodies have strict guidelines on what your professional corporation can be named. Please note that any such requirement is in addition to the name reservation requirement under the Business Corporations Act of British Columbia;
2) An application to the regulating body for a permit for the new professional corporation;
3) Incorporation of the new professional corporation ensuring compliance with all restrictions on shareholdings, directorships, and applicable bylaws and statutory requirements;
4) Submission of the incorporation documents to the regulating body for review and approval;
5) Payment of any required fees; and
6) Issuance of a permit. Please note that the professional corporation cannot provide services until such time as the permit has been issued.
After successfully incorporating, there are often annual reporting requirements as well as annual payment requirements for fees and insurance. It is very important that all initial and ongoing requirements are complied with to ensure the professional corporation remains in good standing with the applicable regulating body.
You should also be aware that in some cases, you may be required to pay dual permitting fees and insurance fees imposed by the applicable regulating body. While in others, there is a combined permit fee and insurance premium provided for both the professional corporation and the individual. It is important that the additional cost of dual fees is considered in deciding if a professional corporation is beneficial to you.
There can be significant benefits to a professional corporation, but the process can be lengthy and requires great attention to detail. Accordingly, we recommend that you retain a lawyer to assist you with the process and ensure your new professional corporation complies with all requirements.
Author: Bennett Liddycoat
This information is general in nature only. You should consult a lawyer or appropriately qualified party before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or one of our lawyers practicing in the area of corporate law at the following: