When considering starting up any sort of Ontario Corporations, selecting the proper corporate form is like selecting the ideal foundation for your ideal home.
Let’s be honest, you would never construct your castle on a flimsy foundation, deciding whether or not to proceed with a Professional Corporation or a general Ontario Corporation, involves thoughtful reflection on your particular set of facts and career demands.
We know it can be daunting to navigate the realm of Ontario Corporations with the legal needs, tax ramifications, and career aspirations on your mind.
Which is why the CIA is here to help you incorporate the correct structure based on your goals, current standing and needs.
In this guide, we have put together this informative comparison article for you to come to a decision on the type of incorporation that is most suited for your business or professional career.
Email: info@incorporationagency.ca
Phone: +1 647.945.8893
Address: 1270 Central Pky, W, Mississauga
Understanding the Basics of Ontario Corporations
When referring to Ontario Corporation, we’re referring to legally separate entities that function independent of their owners. Such corporate arrangements have multiple benefits such as protection for their limited liability, tax benefits, and increased credibility in the market.
We have two common Ontario corporate frameworks for professionals and businesses operated by entrepreneurs:
Professional Corporations (PCs) and Standard Corporations (also referred to as Ontario Business Corporations). The two have distinct applications and each has their own set of rules, benefits, and limitations.
Why Corporate Structure Is Important
Your choice of corporate form largely dictates the manner in which you operate, the manner in which you are taxed, and the sorts of things you can do legally.
We usually see too many owners rushing into incorporation without consideration of such repercussions, only to incur subsequent expense in restructuring.
There are several benefits provided by Ontario Corporations:
- Protection of shareholders against limited liability
- Potential tax advantages through income splitting and deferral
- Greater credibility with clients and providers
- Greater accessibility of investments and finance
- Continuity of enterprise outside of direct ownership
What is a Professional Corporation in Ontario?
Purpose
A professional corporation (PC) is a specialized type of corporation structure which is specifically for licensed professionals. We most often see these entities utilized in doctors, lawyers, accountants, engineers, and other regulated professionals who desire to incorporate their practices while upholding maintaining their professional licensing needs.
Professional Corporations were created to enable licensed professionals to enjoy the benefits of corporations while being subjected to accountability before their respective regulatory bodies. The tension between the benefits of corporations and the responsibility of professionals distinguishes PCs from Standard Ontario Corporations.
Who Can Form a Professional Corporation?
Not all persons can form a Professional Corporation.
Licensed Professional Eligible for PCs:
- Medical practitioners who are enrolled with the
- College of Physicians and Surgeons of Ontario
- Legal professionals qualified with the Law
- Society of Ontario
- Chartered Professional Accountants registered with CPA Ontario
- Professional Engineers registered with Professional Engineers Ontario
- Registered Architects of the Ontario Association of Architects
- Other regulated professionals as defined in provincial legislation
Professional Corporation Advantages
Professional Corporations in Ontario offer many advantages, take a look at the list below we put together:
Tax Planning Strategies:
- Income splitting with family members
- Tax deferral of corporate profits
- Deductible expenses unavailable to sole proprietors
- Corporate structures can provide retirement planning benefits
Professional Advantages:
- Maintained professional liability protection
- Regulatory integration into the organizational structure
- Business Continuity for Professional Practices
- Increased credibility with institutional clients
Standard Ontario Corporations: The Most Common Business Structure
Standard Ontario Corporations,, are the most commonly used mode of incorporation in Ontario.
Our attorneys can help professionals, and entrepreneurs, small and medium-sized businesses, and bigger businesses who prefer this form for its agreeability and overall suitability.
Unlike Professional Corporations, standard Ontario Corporations do not require specialized professional licensing. Thus, they are accessible for nearly any owner who desires the incorporation of their Ontario business.
Understanding Standard Corporate Structures
Business Activities and Scope
One of the many top benefits we see with regular Ontario Corporations is their flexibility when it comes to the operational side of things
The standard corporations can:
Carry out several business ventures
- Retail and wholesale operations
- Production and manufacturing
- Service businesses
- Tech and software development
- Import and Export
- Real estate investing and development
Diversification Options: Standard Ontario Corporations can shift, broaden, or diversify their business ventures without the regulatory constraints that face Professional Corporations. We usually recommend clients who foresee business transformation to take this option into consideration.
Ownership and Investment Structure
Standard Ontario Corporations provide greater freedom in ownership.
- Classes of shares with varying rights and privileges
- Ex external funding without the need for professional licensure
- Sophisticated ownership structuring’s for partnerships or family businesses
- Employee stock ownership programs and profit-sharing programs
Key Differences Between Professional and Regular Ontario Corporations
Regulatory Supervision
The regulatory framework is one of the most important differences among these two types Ontario Corporations:
Professional Corporation Regulation:
- Dual supervision involving both corporate regulators and the occupational groups
- Continuing adherence to professional ethics and standards
- Reporting of requirements to regulatory bodies
- Practice limits based on licensure
Standard Corporation Regulation:
- Standard corporate adherence with provincial governments
- Financial Reporting upon the order of the corporation’s legal requirements
Liability Considerations
Both types of Ontario Corporations offer limited liability protection, with significant differences::
Professional Corporation Liability: We always recommend our professional clients that though PCs do offer protection of the corporation, professional liability is personal. The physician or attorney who is incorporated through a PC continues having full-professional responsibility for his or her services.
Standard Corporation Liability: Standard Ontario Corporations usually grant more extensive liability protection, with shareholders usually shielded from business debt and obligations (except for certain exceptions such as personal guarantees).
Ownership Restrictions
Professional Corporation Ownership:
- Licensed practitioners only can possess the shares
- Family members will hold non-voting shares in certain cases
- Transfer barriers on the way out
- Succession planning difficulties brought on by licensing obligations
Standard Corporation Ownership:
- No licensing requirements for shareholders
- Freely transferable shares (with shareholder agreements)
- Flexibility in Investments
- Simplified Succession Planning Options
Eligibility Requirements for Each Corporation Type
Professional Corporation Eligibility
When we help professionals establish PCs, we ensure they meet these requirements:
Primary Requirements:
- Your professional license is in good standing.
- Meeting professional standards
- You possess the minimum professional liability insurance
Documentation Needed:
- Verification of professional license
- Have a certificate of standing from the regulatory body.
- Evidence in document form of professional liability insurance
- Present a professional corporation’s Articles of Incorporation.
Standard Corporation Eligibility
Standard Ontario Corporations have much more flexible and broader eligibility:
Minimum requirements:
- Must have a minimum of one director (must be Canadian resident)
- Have a registered office in Ontario. We offer many options for a business office address, simply contact us today to learn more.
- A Unique corporate name or numbered name format (Nuans applicable in certain jurisdictions)
- Share structures CLEARLY defined in Articles of Incorporation
We observe that most of our clients are able to meet these needs with ease, opening up a standard Ontario Corporations to all but the most sophisticated of entrepreneurs alike.
Making the Right Choice for You
While advising clients on choosing among these Ontario Corporations entities, we utilize a broad and experienced decision-making approach here are some suggestions on when to choose either or:
Choose Professional Corporation When:
- You’re a licensed practitioner with significant practice revenues
- Tax perks over excess regulatory costs
- Your strategy and aspirations to concentrate on professional services
- Income splitting possibilities with family members
- Professional career requires it to be enhanced to reach further new heights
Choose Standard Corporation When:
- You do not qualify for Professional Corporation status
- You desire functional flexibility for nurturing diversified businesses
- Simplicity is key for compliance
- You have more than one business project within one corporate framework
- Investment activity will be quite large to your knowledge.
Conclusion: How We Can Help You
Opting for either an Professional Corporation or a standard Ontario Corporation is one of the most significant structural decisions you will make for your professional practice or your business.
At CIA, we put together a lot of useful information in this comparison guide for our customers. We consider the main distinctions, advantages, and implications for both options.
If you are looking for support regarding the most suitable options based on your specific situation, professional needs, and business objectives, simply reach out to us and get incorporated today.
Email: info@incorporationagency.ca
Phone: +1 647.945.8893
Address: 1270 Central Pky, W, Mississauga
FAQs
1. Can I change from a Professional Corporation to a regular Ontario Corporation if my business needs evolve?
Yes, it’s possible to convert between corporate structures, though the process can be complex and may have tax implications. We recommend consulting with our team to help you with legal and accounting considerations as well.
2. Are there specific professions that cannot form Professional Corporations in Ontario?
While many licensed professionals can form Professional Corporations, eligibility varies by profession and regulatory body requirements. Some professions may have restrictions or may not be eligible for PC status.
3. How do Ontario Corporations compare to federal incorporation options?
Ontario Corporations are provincially incorporated and primarily operate within Ontario, while federal corporations can operate across Canada. Federal incorporation may be preferable if you plan to operate in multiple provinces.
4. What happens to my Professional Corporation if I lose my professional license?
If you lose your professional license, your Professional Corporation typically cannot continue operating as a PC. You may need to dissolve the corporation, convert it to a regular corporation (if permissible and practical), or take other steps as required by your professional regulatory body.
5. Can Ontario Corporations be owned by non-residents of Canada?
Regular Ontario Corporations can have non-resident shareholders, but at least 25% of directors must be Canadian residents (or at least one director if there are fewer than four directors).
