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.
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 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:
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:
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:
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