What is a professional corporation?
A professional corporation operates much like a business corporation with few exceptions. A professional corporation has to abide by the regulations set by the Business Corporations Act (Ontario) and by the respective governing body. A professional corporation can-only carry on activities of its profession. A professional corporation must meet the requirements of its governing body and receive a Certificate of Authorization or equivalent.
Many professionals are allowed to operate their business as a professional corporation. Examples of professions that can operate under a professional corporation:
Historically professionals have operated through a sole proprietorship or partnership which limits tax planning and results in higher taxes (see “How to setup a business in Ontario” for more in depth discussion). Professionals have lobbied the provincial governments which have allowed them to incorporate their practices.
Does a professional corporation have limited liability?
In “How to setup a business in Ontario” we discussed that a corporation is a separate legal entity and it has limited liability. A professional corporation is slightly different and does NOT have full limited liability (exception for architects and engineers). A professional corporation only offers limited liability in certain areas. When it comes to business debts, the shareholder is only liable up to his or her investment in the business. However, in other circumstances such as malpractice, the corporate veil is lifted resulting in unlimited liability.