Law & Governance

Law & Governance November -0001 : 0-0

Incorporation of Health Care Professions

Michael Watts and Shelley Birenbaum

Abstract

Recent Amendments to the (Ontario) Business Corporations Act have come into force, permitting various professions and health care professions listed in the Regulated Health Professions Act, 1991 (which includes, doctors, nurses, etc.) to incorporate the practise of their health care profession. Details of the incorporation process are set out in a regulation to the Regulated Health Professions Act, 1991 (RHPA) which was filed on February 8, 2002.
However, the health profession colleges still need to pass By-Laws which set out more detailed requirements in respect of incorporation. The College of Physicians and Surgeons of Ontario (College) has not yet passed a By-Law. The College advises that the earliest time for passage of the By-Law is September to December, 2002.

Until the By-Law is passed, a corporation cannot practise the health profession through the corporation.

Conditions for Incorporation

The Business Corporations Act (Ontario) sets out the conditions for incorporation of professions:

  • all of the shares must be legally and beneficially owned, directly or indirectly, by one or more members of the same profession (i.e., there is no provision for multi-disciplinary health profession corporations and no income-splitting through shareholdings by family members, unless the family member is a physician);
  • all officers and directors must be shareholders of the corporation, and therefore physicians;
  • the name of the corporation must comply with the business name rules set out in the Business Corporations Act and the RHPA;
  • the corporation cannot be a numbered corporation; and
  • the corporation may not carry on a business other than the practice of the profession, other than activities that are ancillary or related to the practice of the profession, such as the temporary investment of surplus funds earned by the corporation.

The RHPA further requires that each shareholder of a health profession corporation (HPC) must hold a certificate of registration with the College.

No Limited Professional Liability

In an HPC, professional liability remains the same, and the HPC is jointly and severally liable with the member for all fines and costs that the member is ordered to pay. The HPC is subject to the rules of professional misconduct. There would be limited liability in areas that are not "professional", such as service contracts and purchases of equipment, occupiers liability, etc.

Some Tax Advantages

  • An HPC (if a Canadian controlled private corporation) will be eligible for the small business deduction which allows for a lower tax rate on the first $200,000. of income from an active business.
  • The capital gains exemption is potentially available to shield up to $500,000 (provided that more than 90% of the assets of the corporation are used in an "active business").
  • There is also the potential to have a registered pension plan.

Some Tax Disadvantages

It is unclear if the HPC can invest surplus funds earned by the corporation, other than on a temporary basis, because the Business Corporations Act specifically states that:

The articles of incorporation of a professional corporation shall provide that the corporation my not carry on a business other than the practice of the profession but this paragraph shall not be construed to prevent the corporation from carrying on activities related to or ancillary to the practice of the profession, including the temporary investment of surplus funds earned by the corporation.1

It may be advisable that the health care professional own the HPC through the vehicle of a holding corporation so that surplus funds may be withdrawn through dividends to the holding corporation and invested by the holding corporation. The holding corporation would have to be 100% owned by physicians.

A professional services corporation can co-exist with the HPC, but the $200,000. small business deduction may need to be shared.

Because of the requirement for all shareholders to be physicians, there is not the opportunity for income-splitting that typically is possible in a corporation.

Business Name Rules

The name of the corporation must include the phrase "Professional Corporation", the surname of one or more shareholders (as set out in the College register) and must indicate the health profession. The name may set out the shareholder's given name (as well as surname), shareholder's initial(s) or a combination thereof, but must not include any other information.

Process for Incorporation

The physician must first incorporate a corporation under the Business Corporations Act, and then make application to the College (in the form and with the fee to be prescribed by the College) for a certificate of authorization. The College must issue the certificate of authorization if the eligibility and application criteria are met.

Summary


In its 2000 Budget, the Ontario Government committed to extend the right to incorporate to all regulated professionals, including physicians, dentists, and the other health professionals who are regulated by the RHPA. This Budget commitment related back to the commitment made by the Ministry of Health and Long-Term Care in its April 2000 agreement with the Ontario Medical Association to "recommend to the Government of Ontario that it introduce legislation as soon as possible to allow Ontario physicians to incorporate".

The Government stated in its Budget Paper C (entitled "Made for Ontario Taxes: A New Beginning") its desire to "to level the playing field with other self-employed individuals who can choose whether to operate their businesses through a corporation".

The playing field has not really been levelled with other corporations One of the key benefits of incorporation is the limited liability of its shareholders from claims against the corporation. However, there is no limitation of professional liability for shareholders of a health profession corporation. Another key advantage of utilizing the corporate vehicle are the tax advantages, which include the ability to income split. As discussed above, given the requirement for all shareholders to be physicians, there isn't the opportunity for income-splitting.





  1. Section 3.2 (2) 5 of the Business Corporations Act

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