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Incorporate your Ontario Medicine Professional Corporation with a Lawyer

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Incorporate your Ontario Medicine Professional Corporation with a Lawyer

The Royal College of Physicians and Surgeons of Ontario (“CPSO”) regulates Physician in Ontario. The CPSO allows its Physicians to practice as a professional corporation. Operating as a professional corporation may be beneficial for Physicians as it may limit, defer or minimize their tax exposure.

Incorporating a Professional Corporation

When incorporating a professional corporation, it is important to do this properly with a lawyer as the articles of incorporation comply with the Regulated Health Professions Act, 1991, S.O. 1991, c. 18. In Ontario, a Medicine Professional Corporation is considered to be a health profession corporation and must be an Ontario Corporation. A Canada corporation cannot be a Medicine Professional Corporation in Ontario. Corporations incorporated in a province outside Ontario cannot be used as a medicine professional corporation in Ontario. Fortunately, foreign corporations or Canada corporations can be continued (transferred) into Ontario. After the continuation, foreign corporations or Canada corporations can become a Medicine Professional Corporation in Ontario. Pawlina Law would be happy to help with such a continuance.

Each professional corporation needs to have a registered office address. This address cannot be a post office box. Physicians will often use their home address as the corporation’s registered office address. The registered office address will not be available on CPSO’s website. Only practice locations are listed on CPSO’s website. However, the registered office address of a professional corporation is publicly accessible when a searcher pays the required $8.00 fee. Some Physicians will use their practice location as their registered office address. However, it is only advisable to do so when one has control over the mail received as the practice location.

In accordance with subsection 3.2 (2) of the Business Corporations Act, a Medicine Professional Corporation must satisfy all of the following conditions:

  1. All of the issued and outstanding shares of the corporation are owned in the manner discussed below.
  2. All officers (ie President, Secretary, CEO, CFO) and directors of the corporation shall be shareholders of the corporation.
  3. The articles of incorporation of a professional corporation shall provide that the corporation may not carry on a business other than the practice of medicine but this paragraph shall not be construed to prevent the corporation from carrying on activities related to or ancillary to the practice of medicine, including the investment of surplus funds earned by the corporation.

To ensure your Medicine Professional Corporation is properly incorporated and organized, a lawyer should be retained. Pawlina Law can assist you with setting up your Medicine Professional corporation. Failing to properly set up your Medicine Professional Corporation can result in delays in using your professional corporation or having to file costly Articles of Amendment to ensure your corporation complies with the requirements.

Certificate of Authorization for a Medicine Professional Corporation

Once your Medicine Professional corporation is incorporated, it must first obtain a Certificate of Authorization before practicing. Practicing without a Certificate of Authorization from the CPSO or holding out as a professional corporation without a certificate of authorization from the CPSO is an offence. A professional corporation cannot register as a licensed member of the CPSO, nor can it be a registered practitioner of medicine. Rather, a registrant may obtain a Certificate of Authorization for a Medicine Professional Corporation which allows it to engage in the practice of the profession. To obtain a Certificate of Authorization, a registrant must complete and submit an application in their Member Portal.

Moreover, to be issued a Certificate of Authorization, a professional corporation must comply with O. Reg. 39/02: Certificates of Authorization which requires (among other things):

  1. The articles of the corporation provide that the corporation cannot carry on a business other than the practice of medicine and activities related to or ancillary to the practice of medicine.
  2. Each issued and outstanding voting share of the corporation is legally and beneficially owned, directly or indirectly, by a member of the CPSO.
  3. Each issued and outstanding non-voting share of the corporation is owned in one of the following ways:
    1. It is legally and beneficially owned, directly or indirectly, by a member of the CPSO.
    2. It is legally and beneficially owned, directly or indirectly, by a family member of a voting physician shareholder.
    3. It is owned legally by one or more individuals, as trustees, in trust for one or more children of a voting physician shareholder who are minors, as beneficiaries.
  4. The name of the corporation meets the following standards which are described in subsections (2) to (5) of Section 1 of O. Reg. 39/02. These strandards are discussed below.

Holding corporations are not permitted to own shares in the professional corporation. A trustee may only hold non-voting shares in trust for the benefit of a minor child or children of the voting physician shareholder. The regulation also provides the following definitions as to what is a family member.

  • “child”, in relation to a shareholder, includes a person whom the shareholder has demonstrated a settled intention to treat as a child of his or her family, except under an arrangement where the child is placed for valuable consideration in a foster home by a person having lawful custody;
  • “family member” means, in relation to a shareholder, the shareholder’s spouse, child or parent;
  • “parent”, in relation to a shareholder, includes a person who has demonstrated a settled intention to treat the shareholder as a child of his or her family, except under an arrangement where the child is placed for valuable consideration in a foster home by a person having lawful custody;
  • “spouse” means, in relation to a shareholder, a person to whom the shareholder is married or with whom the shareholder is living in a conjugal relationship outside marriage;
  • “voting physician shareholder” means, in relation to a corporation, a member of the College of Physicians and Surgeons of Ontario who owns voting shares of the corporation.

The CPSO accepts step-children, step-parents and common-law spouses as family member shareholders. However, the CPSO does not accept parents-in-law as family member shareholders.

Each Certificate of Authorization must be renewed annually. A physicians will be reminded by CPSO about 6 weeks before their renewal deadline that they must renew their Certificate of Authorization via their CPSO Member Portal message centre. It takes about two to three weeks to obtain a Certificate of Authorization from CPSO.

Naming Your Medicine Professional Corporation

The name of an Ontario Medicine Professional Corporation must meet the following standards which are described in subsections (2) to (5) of  Section 1 of O. Reg. 39/02:

    • The name of the corporation must meet the requirements in section 3.2 of the Business Corporations Act and must not violate the provisions of any other Act, which include:
      • The name of the corporation shall include the words “Professional Corporation” or “société professionnelle” and shall comply with the rules respecting the names of professional corporations set out in the regulations and with the rules respecting names set out in the regulations or by-laws made under the Act governing the profession.
      • The name cannot be a numbered company.
    •  The name of the corporation must include the surname of one or more shareholders of the corporation who are CPSO members, as the surname is set out in CPSO’s register, and may also include the shareholder’s given name, one or more of the shareholder’s initials or a combination of his or her given name and initials. If you got married recently and changed you name or you just changed your name, you must update CPSO. Abbreviations, nicknames, alternate names are not permitted.
    • The name of the corporation must include “Medicine Professional Corporation” or the respective French variation “Medecine Societe Professionnelle.”
    • The name of the corporation must not include any information other than the information permitted or required by O. Reg. 39/02. It is common for individuals to want to list a title (i.e. Dr.) or their academic or professional credentials in the name of their professional corporation. However, this is prohibited.

Thus, the following options are available for a physician named John Jacob Smith:

  • John Smith Medicine Professional Corporation
  • JJ Smith Medicine Professional Corporation
  • John J. Smith Medicine Professional Corporation
  • J Smith Medicine Professional Corporation
  • J. Smith Medicine Professional Corporation
  • Smith Medicine Professional Corporation

In our opinion, the shortest possible option should be chosen. Pursuant to subsection 3.3 (4) of the Business Corporations Act, A professional corporation that ceases to be a professional corporation shall change its name to remove from it the word “professional” or “professionnelle”.

Voting Agreements and Shareholders Agreements for a Medicine Professional Corporation

Voting agreements or unanimous shareholder agreements are common in the case of small corporations that have only a few shareholder-members as they provide certainty in how the corporation will conduct its affairs. Shareholder agreements often form a critical element in the overall documentation of the business relationships between the incorporators and other persons (such as investors) participating in some capacity in the incorporation of a company. A shareholders agreement usually deals with the following subject matter:

  • Procedural matters
  • How and by whom the Corporation will be Managed
  • Promises of the corporation
  • How shareholders and the corporation will deal with current and future shares
  • Provisions for the resolution of any future disputes between shareholders
  • The location of the business in which the corporation is to engage
  • The contributions that each shareholder is expected to make to the business
  • Withdrawal from membership
  • Buy-sell (shotgun or buyout) provisions
  • Pre-emptive rights to acquire the shares of a departing member of the corporation
  • Addition of new shareholders
  • Restrictions on changing of the business of the corporation
  • Provisions dealing with subscription for share capital and the provision of know-how or other intellectual property to the corporation by its incorporators; and
  • Even such matters as the death, divorce, bankruptcy or retirement of one of the shareholders.

Under subsection 3.2 (4) of the Business Corporations Act, a corporation, agreement or proxy that vests in a person other than a shareholder of a professional corporation the right to vote the rights attached to a share of the corporation is void. Likewise, under subsection 3.2 (4) of the Business Corporations Act, a unanimous shareholder agreement in respect of a professional corporation is void unless each shareholder of the corporation is a member of the professional corporation. Note that there is an exception for the holding corporations, trusts, and non-voting shareholders described above.

Changes in the Medicine Professional Corporation

A professional corporation must inform the CPSO of the following changes in a medicine professional corporation:

  1. Change in Shareholders who are also members of CPSO of the Medicine Professional Corporation
  2. Change in Registered Office Address of the Medicine Professional Corporation
  3. Change in Practice Locations of the Medicine Professional Corporation
  4. Change in the name of the Medicine Professional Corporation
  5. An amalgamation which is the merging of multiple Corporations

Partial Exclusion of Limited Liability

One important difference between a regular Ontario corporation and a Professional Corporation is the partial exclusion of limited liability. With the exception of a few scenarios, due to subsection 3.4 (1) of the Business Corporations Act, a corporation typically insulates shareholders in their personal capacity from corporate liability. However, in a Professional Corporation, shareholders only have limited liability in certain areas. In a Professional Corporation, for the purposes of professional liability, the acts of a professional corporation are deemed to be the acts of the shareholders, employees or agents of the corporation. The liability of a member for a professional liability claim is not affected by the fact that the member is practicing the profession through a Professional Corporation. Thus, a corporation will not protect a physician from a negligence claim.

A physician is jointly and severally liable with a Professional Corporation for all professional negligence claims made against the Professional Corporation in respect of errors and omissions that occurred while the person was a shareholder of the corporation. Thus, shareholder-professionals remain liable both for their own individual negligence and for the negligence or other breach of other professionals who are employed by the corporation. Conversely, a Professional Corporation can shield a physician from other legal claims, such as breach of contract for the Professional Corporation’s commercial lease.

Benefits and Drawbacks of a Medicine Professional Corporation

There are several advantages to providing professional services using a Professional Corporation. The main advantages are the potential tax planning advantages. For example, having a Professional Corporation can provide opportunities for tax deferral, the use of the lifetime capital gains exemption, and flexibility in remuneration. The tax considerations of a Medicine Professional Corporation will be dealt with by your accountants or tax planners. Here is a useful article exploring the tax benefits of Professional Incorporation. At times, it might be more efficient to use an RRSP instead of a professional corporation to achieve tax efficiency objectives. Jamie Golombek explores the use of an RRSP versus a Professional Corporation in this article.

Professional Corporations also provide limited protections from creditors and the ability to pay non-deductible expenses from the Professional Corporation. Setting up a Professional Corporation is most useful for professionals who earn more income than they need, allowing them to keep surplus billings in the Corporation. These surplus billings will likely be taxed at a lower rate when retained in the Corporation and can be reinvested in stocks, bonds, or GICs, allowing the professional to accumulate additional wealth in their Professional Corporation which can be paid out to the physician at their direction. Other benefits of incorporation include:

  • Ownership is transferable to another person provided that they are a physician
  • As long as filings are maintained and the corporation is not dissolved, the corporation’s existence is continuous

Typically, it is a physician’s accountant or tax planner that advises the physician to complete a professional incorporation. Pawlina Law does not provide clients with tax advice. Only a client’s accountant or tax planner is sufficiently familiar with their tax scenarios to advise them on whether pursuing a professional incorporation is tax efficient for them. Pawlina Law has worked with numerous accountants to assist health professionals with setting up their Professional corporation.

The disadvantages of a medicine professional corporation are the additional costs and documentation. Professional Corporations typically result in additional legal and accounting costs for the professional during both the set up and on an annual basis. These costs are further explained, below.

How Much Does a Medicine Professional Corporation Cost?

There are certain costs which are associated with incorporating. These costs can be broken down into legal costs, accounting costs, and regulatory costs in the following manner:

  • Legal Costs – There are initial legal costs for incorporation and annual costs that will be incurred for corporate maintenance. Our professional fee for a professional corporation is $780.00 + HST and Disbursements. Disbursements are expenses that we incur on your behalf, such as an incorporation filing fee. Disbursements are expenses that we incur on your behalf, such as an incorporation filing fee. More information about what is included iis available here. At the time of writing this article, the disbursements are estimated to be $354.41 (inclusive of HST). Our services include everything you need to properly set up your Medicine Professional Corporation. Your Medicine Professional Corporation will have annual maintenance requirements. The professional fees to complete this annual maintenance are $350.00+HST per year plus another $100.00+HST if dividends are declared.
  • Accounting Costs – There would also be additional yearly accountant fees around $2,00.00 – $3,000.00 per year. However, some physicians could reduce their tax bill by tens of thousands of dollars per year.
  • Regulatory Costs – To obtain a Certificate of Authorization, a physicians must pay the CPSO fee of $400.

Conclusion

Each medicine professional corporation is different and will require input from accounting and legal professionals before being created. A well coordinated legal and tax strategy could assist a physicians in achieving substantial tax savings. Registering a medicine professional corporation is complicated, but Pawlina Law can assist you with setting up your Professional Corporation. We are happy to have a courtesy call with a physicians to answer any questions they may have. Please do not hesitate to contact us.

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