What is the difference between a professional and a standard corporation?
Unlike a standard corporation, which can be formed by (almost) anyone, a professional corporation can generally only be established by licensed professionals in certain fields which include medical doctors, dentists, engineers, lawyers, accountants, and so on.
In most jurisdictions, if these regulated professionals choose to incorporate, they must do so as a professional corporation.
There are certain key benefits to incorporation, and they come down to liability and tax.
Liability
One of the key benefits of incorporating is that with the exception of limited circumstances, it shields its owners or shareholders from certain liability. If a corporation is sued for wrongdoing, the business owner’s personal assets are safe. Similarly in a professional corporation, professionals are shielded from liability for non-professional acts, such as a defaulted loan.
However, in a professional corporation, the professional licensee remains liable for their own professional acts, such as when a patient is injured because of a doctor’s negligence or error.
Tax Benefits
There are several tax advantages to forming a professional corporation, many of which also apply to standard corporations, including making use of various tax deferral mechanisms, small business deductions, and income splitting.
There are certain costs associated with running a corporation. The increased complexity means you’ll face higher start-up and maintenance costs required to hire professional accountants and lawyers. Professional corporations also face greater scrutiny around their corporate record keeping and are often required to obtain a certificate of authorization for the professional corporation from their applicable regulatory body.
If you’re thinking about forming a professional corporation, contact our team of business lawyers to help you work through the pros and cons.
* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.
