You’ve spent years building your legal skills, building a reputation, and establishing a thriving practice. Now, you’re ready to take the next step and incorporate your law firm. But where do you begin?
Understanding the ins and outs of professional corporations for lawyers is crucial. By incorporating your company, paralegals can enjoy numerous benefits while ensuring compliance with the regulations set forth by the Law Society of Ontario and the Business Corporations Act.
It is important to have a plan in place for incorporating your company. Incorporating your law practice into a law professional corporation (company) is a strategic plan that offers tax advantages and liability protection for your legal entity.
We’ll discuss how contributions to a professional corporation work, provide examples of how it can benefit your practice, and offer key information about the process.
- Sole proprietorship, partnership, limited liability partnership, and professional corporation are business structures available to lawyers in Ontario.
- Incorporating a professional corporation provides limited liability protection and enhances the professional image of the firm.
- Professional corporations offer tax planning strategies such as income tax deferral, lower tax rates, and tax-free rollover for existing business assets.
- Seeking expert guidance is essential when incorporating a law firm.
1. Business Structures for Lawyers in Canada
Lawyers in Ontario can practice law through a sole proprietorship, a general partnership, a limited liability partnership, or a professional corporation, each offering distinct advantages and considerations.
Incorporating a professional corporation provides limited liability protection, allowing lawyers to safeguard their personal assets from the debts and liabilities of the business. Additionally, a professional corporation is considered a separate legal entity, which can enhance the professional image of the firm.
This business structure also offers effective tax planning strategies not available to other business structures, such as income tax deferral, lower tax rates, and tax-free rollover for existing business assets. However, professional corporations have specific rules and restrictions regarding shareholders, directors, corporation names, and services provided.
Therefore, it is essential for legal professionals to seek expert guidance when incorporating a law firm.
2. Considerations for Incorporating in Canada
One important consideration when incorporating a legal practice in Ontario is evaluating the potential tax advantages and limitations associated with professional corporations.
When considering the incorporation of a legal practice in Ontario, it is vital to contemplate the following aspects:
1. Tax Benefits:
Professional corporations offer tax planning strategies, such as income tax deferral and lower tax rates, which can be advantageous for lawyers in Ontario.
2. Professional Liability Insurance:
Understanding the requirements and implications of professional liability insurance is crucial when incorporating a legal practice, as it directly impacts the protection of the corporation and its stakeholders.
3. Certificate of Authorization:
Obtaining a Certificate of Authorization from the Law Society of Ontario is a mandatory step for lawyers looking to incorporate their legal services in Ontario.
4. Ontario Business Corporations Act Compliance:
It is essential to comply with the regulations outlined in the Ontario Business Corporations Act to ensure the proper establishment and operation of professional corporations.
3. Application Process & Administrative Fees
Incorporating a legal practice in Ontario involves completing an application process and incurring various administrative fees. To incorporate, lawyers must adhere to the Ontario Business Corporations Act (OBCA) and the Law Society Act. The application process requires submitting articles of incorporation, which must include specific information about the corporation and its shareholders. Additionally, the corporation must be licensed to practice law and obtain a certificate of authorization from the Law Society of Ontario. This process incurs an application fee of $250.00 (plus HST). Furthermore, the corporation must be aware of ongoing administrative costs, such as annual renewal fees of $100.00 (plus HST) for the certificate of authorization. These fees are essential for maintaining compliance and the legal ability to operate as a professional corporation.
|Articles of Incorporation
|$250.00 (plus HST)
|$100.00 (plus HST
4. Name Compliance Requirements for Incorporating in Ontario
Discussing the requirements for name compliance when incorporating a professional corporation in Ontario involves adhering to specific guidelines set by the Law Society of Ontario and the Ontario Business Corporations Act.
When choosing a name for the corporation, it must include the words ‘professional corporation’ and comply with the naming rules outlined by the Law Society of Ontario.
Incorporating in Canada ensures that the corporation is legally recognized as a professional entity and meets the necessary regulatory standards.
Additionally, the name must comply with the guidelines set by the Law Society of Ontario, and the share structure should allow for multiple classes of shares.
Ensuring compliance with these regulations is vital to establishing a professional corporation that adheres to legal requirements in Ontario.
5. Obtaining a Certificate of Authorization
When establishing a professional corporation in Ontario, lawyers are required to obtain a Certificate of Authorization from the Law Society of Ontario to practice through a Law Professional Corporation. This is in accordance with the Ontario Business Corporations Act, which stipulates that a corporation shall not provide legal services unless it holds a Certificate of Authorization issued by the Law Society of Ontario.
The application process involves providing detailed information about the corporation, its directors, and officers. Moreover, compliance with restrictions and regulations is essential for the approval of the Certificate of Authorization. Once obtained, the Certificate must be renewed annually, with the renewal fee payable by shareholders. Additionally, surrendering the Certificate is mandatory if the corporation ceases to practice law.
After obtaining the Certificate of Authorization, the next step is to register for a Federal Business Number and HST, ensuring full compliance with legal and regulatory requirements.
6. Registering for Federal Business Number and HST
Lawyers incorporating in Ontario must obtain a Federal Business Number for conducting business and paying taxes in the province. To ensure compliance and smooth operations, businesses incorporation in Canada also need to register for HST. This process involves:
1. Applying for a Federal Business Number through the Canada Revenue Agency (CRA) website or by phone.
2. Registering for HST through the same platform to comply with tax laws.
3. Establishing a separate corporate bank account for bookkeeping, Payroll, and accounting purposes, managed by an Accountant or bookkeeper, to handle finances and transactions related to the practice of law.
4. Seeking the guidance of a business lawyer specializing in setting up professional corporations to navigate the share structure and other legal requirements in Ontario.
Properly registering for a Federal Business Number and HST is crucial for lawyers incorporated in Ontario to operate within legal boundaries and fulfill tax obligations. This is a significant step towards legal and regulatory compliance when establishing a professional corporation.
7. Legal and Regulatory Compliance
Ensuring legal and regulatory compliance is crucial for lawyers incorporating in Ontario. They must meticulously adhere to the guidelines and requirements outlined by the Law Society of Ontario and the Ontario Business Corporations Act. This includes obtaining a Certificate of Authorization from the Law Society of Ontario.
Furthermore, lawyers incorporating in Ontario must ensure that shareholders are also directors and officers of the professional corporation, and that they are licensed to practice law in Ontario. There are also specific restrictions regarding the corporation name, services provided, and liability.
In addition to the corporation itself, shareholders, employees, and agents of the corporation bear liability. It is therefore important to seek professional advice and guidance throughout the incorporation process. This will help ensure compliance with laws and regulations, protect interests, and maximize the benefits of incorporating a law firm.
8. Benefits of Professional Corporation
Typically, professional corporations offer tax planning benefits and liability protection to lawyers in Ontario.
Here are the key benefits of incorporating a professional corporation:
1. Tax Planning:
Professional corporations provide tax advantages, including income tax deferral, lower tax rates through retaining earnings or income splitting, and tax-free rollover for existing business assets.
2. Retirement Savings:
Lawyers can set up an Individual Pension Plan (IPP) allowing higher contribution rates and one-time lump-sum contributions for retirement savings.
3. Health and Welfare Trusts:
Establishing HAWTs for employees of professional corporations allows tax planning benefits by enabling deductibility of contributions made to the plan and reimbursement for medical and dental expenses.
4. Liability Protection:
Incorporation extends liability to shareholders, employees, and agents, safeguarding against professional liability claims compared to a sole proprietorship or general partnership.
For personalized advice on the benefits of professional corporations, please contact a business lawyer specializing in setting up professional corporations.
9. Tax Implications for Lawyers
Discussing the tax implications for lawyers incorporating in Ontario involves evaluating potential advantages and responsibilities. When considering tax implications, lawyers need to understand that professional corporations provide legal and tax benefits, such as income tax deferral, lower tax rates, income splitting, and tax-free rollover for existing business assets. Moreover, lawyers can set up an Individual Pension Plan (IPP) for retirement savings and establish Health and Welfare Trusts (HAWTs) to provide tax planning benefits and reimburse medical and dental expenses for employees. Furthermore, setting up a professional corporation requires a complex process, and lawyers need to ensure compliance with legal and regulatory requirements. The following table summarizes some tax implications for lawyers incorporating in Ontario:
|Income Tax Deferra
|Lower Tax Rates
|Compliance with Legal Requirements
|IPP for Retirement
|HAWTs for Tax Planning
|Correct Setup Process
For lawyers desiring freedom and financial benefits, incorporating as a professional corporation can provide legal and tax advantages while also allowing for effective tax planning strategies.
10. Liability Protection for Professional Corporations
Lawyers incorporating in Ontario can achieve liability protection for their professional corporations through adherence to specific legal and regulatory requirements. This includes:
1. Choosing a name for the corporation that complies with the guidelines.
2. Obtaining a Certificate of Authorization from the Law Society of Ontario.
3. Registering for a Federal Business Number and HST.
4. Maintaining compliance with legal and regulatory requirements.
Adhering to these requirements can provide liability protection for professional corporations, offering peace of mind to lawyers who seek to protect their personal assets from potential professional liability claims.
Seeking the assistance of a business lawyer specializing in setting up professional corporations can ensure correct setup and ongoing compliance with the necessary laws and regulations, thereby providing a solid foundation for the professional practice.
11. Transitioning From Sole Proprietorship
Transitioning from a sole proprietorship to a professional corporation in Ontario requires careful consideration of the financial and legal implications associated with this business structure change. As a lawyer or paralegal, this shift entails assessing the income tax benefits and challenges of each business structure.
Incorporating a legal practice under the Ontario Business Corporations Act (OBCA) and obtaining a certificate of authorization from the Law Society of Ontario is essential. It’s important to note that this transition incurs initial and ongoing administrative costs, including reporting costs and preparing and filing tax returns. Furthermore, liability in a professional corporation extends to shareholders, employees, and agents of the corporation.
Seeking professional advice and guidance throughout this process is crucial to ensure a seamless transition.
Next, let’s delve into the process of renewing the certificate of authorization.
12. Renewing Certificate of Authorization
The renewal process for the Certificate of Authorization requires thorough documentation and adherence to specific regulatory guidelines. To renew the Certificate of Authorization for a professional corporation in Ontario, the following steps must be taken:
1. Complete Application: Submit a completed renewal application through the Law Society of Ontario member portal.
2. Pay Renewal Fee: Pay the renewal fee of $100.00 (plus HST) online, which can only be paid by the shareholders of the professional corporation.
3. Provide Information: Furnish updated information about the professional corporation and its shareholders.
4. Comply with By-Law 7: Ensure that the application for renewal complies with By-Law 7, section 10, and surrender the Certificate of Authorization if the professional corporation is not practicing law.
Adhering to these steps ensures the seamless renewal of the Certificate of Authorization, allowing the professional corporation to continue its legal practice.
13. Discontinuing Certificate of Authorization
Upon discontinuing the Certificate of Authorization for a professional corporation in Ontario, certain regulatory and procedural steps must be followed to ensure compliance with the Law Society of Ontario‘s guidelines.
Firstly, the shareholders must pass a resolution to dissolve the professional corporation and cease its legal practice. This must be accompanied by a notice to the Law Society of Ontario, outlining the decision to discontinue the Certificate of Authorization.
The corporation should then settle all outstanding debts and obligations, including any professional liability insurance requirements.
Finally, the shareholders must surrender the Certificate of Authorization to the Law Society of Ontario.
It’s crucial to ensure that all statutory and regulatory requirements are met to avoid any potential legal implications. Seeking guidance from legal professionals experienced in corporate dissolutions is advisable.
14. Frequently Asked Questions
1. What Professions Can Incorporate in Ontario?
Professionals in Ontario, including lawyers, can incorporate their practices. This involves adhering to guidelines set by the Law Society of Ontario and the Ontario Business Corporations Act, obtaining a Certificate of Authorization, and ensuring ongoing compliance with legal requirements.
2. Can Lawyers Unionize in Ontario?
Yes, lawyers in Ontario have the right to unionize. This allows them to collectively negotiate terms and conditions of employment, enhancing their bargaining power and advocating for their professional interests as a cohesive entity.
3. Can a US Lawyer Practice in Ontario?
Yes, a US lawyer can practice in Ontario subject to the rules and procedures set by the Law Society of Ontario. This includes obtaining a Certificate of Authorization and complying with the necessary legal and regulatory requirements.
4. How Much Do Lawyers Charge to Incorporate a Business in Canada?
The fees for incorporating a business in Canada vary based on complexity and legal services provided. Costs typically include legal advice, document preparation, filing fees, and ongoing compliance expenses. Lawyers may offer package deals or charge hourly rates for their services.
In conclusion, the establishment of professional corporations by lawyers in Ontario involves adherence to specific regulations and criteria outlined by the Law Society of Ontario and the Ontario Business Corporations Act.
Engaging the services of a business lawyer with expertise in this area can facilitate accurate formation and alignment with legal stipulations.
It is essential for legal professionals to consider the various procedures and considerations involved in incorporating in Ontario to ensure compliance with legal and regulatory obligations.
If you need help in opening a corporation feel free to contact MultiTaxServices