In Canada, a professional corporation is a corporation engaged in providing professional services where a member of a profession governed by its professional body allows its members to practice through a corporation as opposed to a sole proprietorship or partnership. Each professional governing body may have its own set of rules requiring certain formalities to be respected. Below are the typical requirements of professional corporations. However, it is suggested that you contact your governing body before you proceed with the incorporation of a professional corporation.
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Which professions can incorporate a professional corporation?
Legislation typically requires that only those professions that are governed by a professional governing body or association as provided by law can incorporate a professional corporation. Each province has different laws and rules as to which professions have these governing bodies. Generally, professions that can incorporate a professional corporation include: Accountants, Architects, Attorneys, Physicians, Dentists, Veterinarians and Engineers among others.
Formation and Operation
A Canadian professional corporation resembles a business corporation, requiring compliance with corporate law and the rules and regulations of professional licensing bodies. A professional corporation is formed in the same manner as a business corporation, except that it typically has one or several of the following additional limitations, depending on the jurisdiction:
1. All shares of stock of the corporation (or a minimum percentage) must be owned and held by individuals licensed in the profession of the corporation.
2. At least one incorporator must be licensed in the profession.
3. At least one director (or a majority, or even exclusively) must be licensed in the profession.
4. The articles of incorporation, in addition to all other requirements, must limit the activities of the corporation to the profession.
5. The professional corporation may be required to obtain from the appropriate professional body a certification that the shares of stock are owned by individuals who are duly licensed in the profession.
6. Professional corporations are typically required to use the name of the professional as part of the corporate name. They are also required to have the words “Professional Corporation” as part of its legal name.
Moreover, the professional corporation may be required to obtain a certificate of registration from the professional body finding that no disciplinary action is pending before the professional body against any of the licensed directors, shareholders, or employees of the corporation. The certificate of registration may be required to be renewed as often as required by law or by the regulations of the professional body. Professional corporations may be subject to additional limitations and regulations imposed by their respective professional bodies.
A professional corporation offers its shareholders limited liability in certain areas. Generally, a shareholder is liable for the debts and liabilities of the corporation to the extent of his or her investment. Personal assets usually are not at risk. Exceptions include:
- The shareholder personally guarantees a business debt.
- Piercing of the corporate veil.
- Professional malpractice.
Liability for professional malpractice is typically limited to three circumstances: (a) the liability arises from the malpractice of the individual owner; (b) The individual owner supervised or directed the person who committed the malpractice; or (c) the individual owner was directly involved in the specific activity which resulted in the malpractice.
Officers, directors, employees, and agents of the corporation may be held personally responsible for liabilities arising out of their services to the corporation. The corporation may indemnify its officers, directors, employees, and agents for costs and expenses incurred as a result of such liabilities. Also, the corporation may buy insurance covering its officers, directors, employees, and agents for liabilities arising out of their services to the corporation.
If the business poses a threat of personal injury or property damage, limited liability may be important. However, adequate business insurance is essential to protect the business from overwhelming legal liabilities resulting from personal injury or property damage.
Period of Existence
A professional corporation has a less stable business life than a business corporation due to the dependence on its members. For example:
1. The death or disqualification of a shareholder or employee may result in the dissolution of the corporation.
2. If a licensed officer, shareholder, agent, or employee of a professional corporation becomes disqualified to provide professional services, he or she must sever all employment with and financial interest in the corporation. Failure to comply may be grounds for forfeiture of the corporation’s certificate of incorporation and its dissolution.
3. A professional corporation must report the death of a shareholder to the appropriate professional body within 30 days of the date of death. Within one year, all shares owned by the deceased shareholder must be acquired by the professional corporation or by persons qualified to own them.
4. A professional body may suspend or revoke the certificate of registration of the professional corporation if :
a. The corporation fails to remove or discharge an officer, director, shareholder, or employee whose license to practice is suspended or revoked.
b. The professional corporation has failed to comply with provisions of the Professional Corporation Act or the regulations of the professional body.
If the certificate of registration is suspended or revoked, the corporation must stop providing professional services, and the Secretary of State will remove the corporation from active status.
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