Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to setting up a dental, health, or legal professional corporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your professional corporation.  I should know – I’m one of them and you can contact me directly (michael@carabashlaw.com).

So you are a dentist and you want to have a professional corporation for tax purposes.  Here’s the general process:

1. Under the Regulated Health Professions Act, 1991, no corporation shall hold itself out as a health profession corporation unless it holds a valid certificate of authorization: s. 34.1(1).
2. Schedule 2 of that Act discusses Health Profession Corporations (ss. 85.8 through to 85.14).
3. Subject to the regulations made the Act and the by-laws, one or more members of the same health profession may establish a health profession corporation for the purposes of practising their health profession: s. 85.8(1).
4. The Certificates of Authorization (Ontario Regulation 39/02) are made under the Act.
5. You will need to have a corporation BEFORE you can have a health profession corporation.  In other words, a health profession corporation is simply a corporation holding a certificate of authorization. So the corporation will need to be registered under the Canada Business Corporations Act or the Ontario Business Corporations Act.  To register a corporation, you should have a lawyer prepare the articles of incorporation, the by-laws, director and shareholder resolution and meeting minutes, director and shareholder registry, etc.  A lawyer may also be needed to  create a special class of shares for certain family members (for income-splitting purposes).
6. If you would like a lawyer to fill out the Certificate of Authorization, lawyers would charge extra for their time and it would also cost $750 in fees to the Royal College of Dental Surgeons of Ontario.
7. Depending on the name you choose for your professional corporation, the normal time frame to incorporate is between 1-3 business days.  If there are issues with the name you’ve selected, it could take longer.

FYI, you might want to consider getting a memo from a lawyer on the tax advantages/potential traps of having a dental professional corporation.  There are many things that you should be aware of (e.g. income splitting, loans, attribution rules, etc.).  The way I see it, if you’re going so far as to spend $2,500 to $3,000 incorporating (which includes getting a certificate of authorization), you should spend a bit extra to find out what you can legally do with a corporation with respect to taxes.

written by admin \\ tags: articles of incorporation, business corporations act, business lawyers, canada business corporations act, dental health, health profession, health professions act, ontario business, ontario regulation, professional assistance, professional corporation, regulated health professions, regulated health professions act, shareholder resolution, valid certificate

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only.  If you believe you require assistance in deciding which business structure is best for you, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).

In this blog, I’ll be discussing professional corporations.

Some of the biggest advantages to operating a law firm through a professional corporation include:

• Tax benefits and tax deferral through the small business credit and the lifetime capital gains exemption to qualifying small businesses;
• The ability to raise capital through a security issuance (e.g. equity or debt);
• The prestige factor that goes along with having a “Professional Corporation”; and
• A lawyer can choose his or her salary and dividend mix in order to minimize tax exposure.

The disadvantages to operating a law firm through a professional corporation include:

• Unlimited liability for the corporate shareholders;
• Inability to engage in income splitting via share ownership;
• Relatively high start-up costs and ongoing maintenance costs (e.g. accounting, meetings and minutes, payroll, and taxes); and
• Creating and maintaining a separate bank account, letterhead, business and tax numbers, etc.

Definition
Ontario’s Business Corporations Act “["BCA"]and the Law Society of Upper Canada’s By-Law #7 govern professional corporations. In the legal context, a professional corporation is a corporation whose shareholders (s. 3.2(1)(1) of the BCA), officers and directors (s. 3.2(2)(2) of the BCA), and managers (s. 32 of By-Law #7) are licensed members of the Law Society of Upper Canada.

Ease of Creation
By and far, a professional corporation is the most onerous – in terms of cost, time, and effort – to create. Ontario’s Business Names Act provides that “[n]o corporation shall carry on business or identify itself to the public under a name other than its corporate name unless the name is registered by that corporation”(s. 2(1) of the Business Names Act).

A professional corporation must first be incorporated in Ontario. Furthermore, lawyers may not practice law through a professional corporation until they have received their Certificate of Authorization from the Law Society – which entails completing an application form and paying an additional fee.

Continuity
Among other things, so long as the directors/officers of the corporation file the company’s annual return and the company is not cancelled for failing to comply with tax requirements, the company will survive the death or bankruptcy of its shareholders and managers and its shares may be perpetually transferred.

Liability
Section 3.4(1) of the Business Corporations Act provides that the professional liability of a shareholder of a professional corporation is unlimited under an Act governing the profession for acts of the shareholders or acts of employees or agents of the corporation. Importantly, this means that, unlike with typical corporations, shareholders of professional corporations are not immune from unlimited personal liability.

Security Interests

Only individuals who are licensed by the Law Society of Upper Canada to provide legal services to the public pursuant to a Certificate of Authorization can be shareholders of a professional corporation (Business Names Act, s. 3.2(2)1). As a separate legal entity, a professional corporation is capable of owning security interests in other business entities and properties.

Taxation
A professional corporation may have the best or worst tax treatment of all the business organizations examined (depending on whether net income is reduced down to zero via labour/employment expenses). On the one hand, if the shareholder lawyers are making more money than they need to be comfortable, then they might consider incorporating and paying themselves a salary less than what the corporation earns so as to defer taxes. On the other hand, the corporation is the only form of business organization whose income is double taxed: the professional corporation’s income is taxed and then whatever retained earnings are distributed to the shareholders are taxed again. As discussing the taxation of corporations is long and complicated, I won’t be getting into it here.

If you have comments, questions or concerns about taxation or other issues involving professional corporations,you’re encouraged to go to Dynamic Lawyers and make a post to get free information and quotes from local lawyers.

written by admin \\ tags: bca officers, business corporations act, business names act, business structure, capital gains exemption, corporate shareholders, dividend, income splitting, law society of upper canada, legal context, letterhead, maintenance costs, ontario professional corporations, professional corporation, professional corporations, professional corporations ontario, share ownership, small business credit, tax deferral, tax exposure, tax numbers, unlimited liability

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only.  If you believe you require assistance in deciding which business structure is best for you, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).

In this blog, I’m going to write about lawyer associations as an alternative to forming a partnership or having a professional corporation.

Defined
An association is simply an arrangement whereby a sole practitioner or partnership shares space with other lawyers.  In other words, an association is an unincorporated company which allows its members (i.e. individual lawyers running their own practices) to share costs and resources.

Advantages
There are tremendous benefits to space-sharing. The most obvious is the sharing of expenses: receptionist, bookkeeper, photocopier, boardroom, library, phone system and fax. When first starting out, lawyers’ overhead costs can be daunting, and sharing these expenses can mean a significant saving. Other benefits include: each lawyer maintains much of the autonomy of a sole proprietorship, liability is prima facie not shared, there is the possibility of cross-referral work, an on-site lawyer can watch over another lawyer’s practice when the latter lawyer is on holidays or ill, expenses can be shared, and there is someone who can give a sympathetic ear to when a lawyer is in need.

Disadvantages
The main disadvantage to an association is the potential for joint liability: notwithstanding best efforts to limit liability of the individual association members, they may still be held jointly and severally liable because of the actions of other members.  To help mitigate against this, the members can draft a mutual indemnification agreement; however, the bottom line is that if one or all of the associates become insolvent or are personally judgment proof, the “last man standing” may still be stuck paying for the jointly acquired debts.

There are other, less obvious advantages to sharing space. Lawyers may have to share the burdens of administration with others — dealing with equipment suppliers, for example.

Ease of Creating
Apart from the individual associates establishing a sole proprietorship or professional corporation form the association, the association is typically created through a cost-sharing agreement with other associates.

Continuity
As per Wendy E. Oughtred in Going It Alone: A Start Up Guide for the Sole Practitioner, (Aurora, Canada: Canada Law Book Inc., 1995), p. 49, the cost sharing agreement should deal with the following issues:

Specify a finite term of the arrangement. At the end of the term you can agree to extend it if it is working, or terminate it with no hard feelings. Provide for the means by which someone can leave the association early and how they are to be compensated if at all for their contribution to any joint assets. Specify the period of notice which must be provided by the departing member. It is also important that a mechanism for the removal of a member be detailed and under what circumstances this action may occur. An individual should be nominated to find a replacement associate under circumstances and it should specified who bears the interim expenses if there is a delay between the departure of a member and the introduction of a replacement.

written by admin \\ tags: advantages of association, association members, best efforts, boardroom, bookkeeper, business structure, forming a partnership, indemnification agreement, joint and several liability, joint liability, judgment proof, last man standing, lawyer association, lawyer associations, legal structure, library phone, overhead costs, partnership shares, professional corporation, referral work, share costs, Sole Practitioner, sole proprietorship, sympathetic ear

There are 5 possible legal structures a lawyer could choose from when deciding whether or not to go out on their own or in combination with others: (1) Sole Proprietorship, (2) Association, (3) General Partnership, (4) Limited Liability Partnership, or (5) Professional Corporation.

Each structure has its own advantages and disadvantages with respect to ease of creation, continuation (e.g. administrative paperwork), ownership, taxes, liability, and ease of dissolution.

Over the course of the next few posts, I’ll discuss the advantages and disadvantages of each of these legal structures – beginning with the sole proprietorship.

Sole Proprietorship

Defined
If you are the sole lawyer/owner of the law practice, then the law practice will carry on business as a sole proprietorship – an unincorporated business organization that has only one owner. There is no separate legal existence between the owner and the sole proprietorship. With a sole proprietorship, “[y]ou will have complete control over your expenses your work load, your trust account, and your revenue. There will be no need to consult others if you choose to expand your business and you have the freedom to work out of your home to keep your overhead to a minimum” (Wendy E. Oughtred in Going It Alone: A Start Up Guide for the Sole Practitioner, (Aurora, Canada: Canada Law Book  Inc., 1995), at p. 43).

Advantages and Disadvantages
The advantages and disadvantages of running s sole proprietorship are clearly spelled out in the following sources: Judge William Huss, Start Your Own Law Firm: A guide to all the things they don’t teach in law school about starting your own firm, (Illinois, U.S.A.: Sphinx Publishing, An Imprint of Sourcebooks, Inc., 2005), p. 13.  See also Felicia S. Folk, Getting Started: Opening Your Law Office (updated September 2004), Law Society of British Columbia, p. 5: online: Law Society of British Columbia.

According to those sources, the advantages of running a sole proprietorship include:

• The freedom of making all of the decision;
• All profits going to the owner/operator;
• Work can be done where and when the owner/operator desires;
• More client contact;
• No partners meetings;
• Flexibility;
• The freedom from wrangling over fees and distributions; and
• The personal satisfaction of achieving success by the use of one’s own knowledge, skills, and experiences.

The disadvantages of running a sole proprietorship, however, include:

• Lack of specialization, leading to lack of knowledge about various subject areas and the risk of making mistakes
• Succumbing to financial problems;
• Not being able to handle large or complex matters (and the large fees that go with them);
• Having responsibility over all administrative details;
• No income-balancing with partners;
• Not being able to have anyone in the office to handle emergencies while the owner/operator is absent;
• Isolation from other lawyers; and
• High overhead expenses for equipment.

Ideally Suited
Overall, a sole proprietorship may be ideally suited for small towns or suburban areas, where everyone tends to know everyone else, and the problems are rarely so catastrophic that a large firm has to be brought in. The sole practitioner can make a very good living taking care of small criminal cases, traffic and drunk driving matters, wills and probate matters, small business contracts,leases, and other services that fulfill people’s needs in that kind of environment.

Ease of Creation
By and far, creating a sole proprietorship is easier than creating any other type of business organization. Ontario’s Business Names Act provides that “[n]o individual shall carry on business or identify his or her business to the public under a name other than his or her own name unless the name is registered by that individual”18. Registering a sole proprietorship’s name can be done by completing and submitting an on-line application for a Master Business
License to:

Companies and Personal Property Security Branch
Ministry of Government Services
393 University Ave., Suite 200
Toronto, Ontario M5G 2M2

The cost is $60.00 and the Master Business License must be renewed every 5 years at a cost of $60.00.

Continuity
If a sole proprietorship’s owner stops working (e.g. retires, dies, goes bankrupt, etc.), then the business will cease to exist. In other words, a sole proprietorship has no continuity above and beyond the owner’s.

Liability
The owner is exposed to unlimited personal liability for the sole proprietorship’s debts and obligations. That being said, a sole proprietor will not be incurring liability as a result of anyone else’s negligence or malpractice (which may be the case with a partnership).

Taxation
Income earned by a sole proprietorship flows to the owner, where it is fully taxed at the owner’s personal income tax rate. Despite this downside, the owner will be able to offset losses and business expenses from the sole proprietorship or any other source of income (e.g. businesses or property) against his or her personal income from any source of income. The fiscal year end for the sole proprietorship will be the same as for the individual owner – namely, December 31st of each year.

written by admin \\ tags: administrative paperwork, business organization, complete control, dissolution, going solo, legal existence, legal structures, limited liability partnership, oughtred, professional corporation, Sole Practitioner, sole proprietorship, sourcebooks inc, start your own law practice, toronto lawyers, trust account, unincorporated business