How to set up and maintain a lawyer professional corporation
If you’re a lawyer considering incorporating your practice, it’s crucial to know the set-up and maintenance involved when launching a lawyer professional corporation, says Toronto business lawyer Anton Katz.
“All shareholders, directors and officers must be licensed to practise law in Ontario or, in the case of paralegals, provide legal services,” Katz says.
“In 2006, Ontario lawyers were given the right to incorporate their practices, bringing them on par with engineers, architects, dentists, physicians and surgeons as well as regulated health-care professionals,” he tells AdvocateDaily.com.
Katz says some of the advantages of operating as a professional corporation (PC) are lower tax rates, pension plan and tax-deductible group health and life insurance, and limited liability (other than for malpractice).
He says there are disadvantages, which include “increased administrative expenses to the Law Society of Upper Canada (LSUC) and ongoing professional fees associated with updating corporate minutes and preparing financial statements, as well as costs related to accounting and bookkeeping.”
The steps to incorporate as a PC, Katz says, require a moderate amount of time, effort and money. The process can be broken down as:
Make an application for a Professional Corporation Name Certificate
Katz says this no-fee application is made to the Administrative Compliance department of LSUC, with a 15 business day turnaround. He notes the name must contain the words “Professional Corporation” in full and not separated by any other words. As well, the name must comply with the Professional Corporation Name Guidelines.
Conduct a NUANS search
You must acquire an Ontario-based NUANS search report to accompany your articles of incorporation, Katz says. The NUANS computerized search system compares a proposed corporate name with databases of existing names to determine if the proposed name is taken or too similar to something else.
Articles of incorporation
Your articles of incorporation — which act as a charter to establish the existence of the professional corporation — must include a clause in article 5 restricting the business of the PC in accordance with s. 3.2(2) 5 of the Ontario Business Corporations Act and s. 61.01(5) of the Law Society Act.
There must be a clause in article 8 that restricts the shares of the PC, says Katz. “Holding companies are permitted as shareholders but the business of the holding company must be restricted to holding shares of the PC,” he explains.
“It’s important to note you cannot have non-lawyer spouses, parents or children as shareholders,” Katz adds. “This is a bit different from medicine and dental PCs which can have non-physician/non-dentist spouses, parents, or children as shareholders provided they hold non-voting shares.”
Filing the articles of incorporation costs about $330 if done online or $360 for a paper filing.
Obtaining a certificate of authorization
The last step in setting up your PC is obtaining a certificate of authorization. An application is made to the Administrative Compliance department of LSUC at a cost of $250 plus HST. There is a 15 business day turnaround, and Katz stresses you are not permitted to practise law through the PC until you have received the certificate of authorization.
“Now that you are operating as a PC, you are no longer self-employed but are instead an employee of the PC,” Katz says.
Third parties, including landlords, suppliers and employees should be notified and business cards, letterhead, signage, websites should be changed to reflect the PC.
“You’ll also need a new HST number, and should change your bank account into the name of the PC as well as obtain a credit card in the name of the PC,” he says.
Finally, it’s important to keep in mind you must renew your certificate of authorization annually, at a cost of $75 plus HST. Failure to do so may result in an automatic revocation of your certificate of authorization.