Do You Understand the Incorporation Rules as a Doctor?
It can be really easy for those who are in the medical profession such as Doctors and Dentists to understand what incorporating their medical business allows them and doesn’t allow them to.
Many medical professionals have an office setting where their spouse plays an active role in the administrative operation of the practice. If they decide to incorporate their medical practice as a business quite often they are under the assumption that their spouse who is involved in the business can be made an officer or director. As such they would perhaps have equal voting rights for the news formed business. This way they feel that the spouse is protected if something should happen to the spouse who is the medical professional.
Unfortunately it does not work that way.
It started back in 2005 when the Ontario government allowed these professionals to incorporate. The rule was however that all shares had to be owned by the professional, there was no provision for spit income saving. This changed in May 2005 when some Government changes were made. The ownership rules were expanded. It now meant that family members could hold non voting shares. This at least allows for some income spitting.
The remainder of the rules for the Professional Corporation originally mandated are still in effect. Meaning, that both the professional and the corporation can be held liable for professional liabilities.
The PC can hold passive investments, but the rest of the activities taking place under the professional corporation have to be profession related.
So, what is the advantage of having a Professional Corporation? The biggest advantage is being able to utilize the small business tax deduction, and there are a few others that are quite complex.
You may be using a lawyer to start your new business corporation but make sure this professional is well versed in the requirements for a professional corporation. After this you really need to rely on an accountant for your tax filings as this type of corporation demands close scrutiny and accuracy.
If you haven’t gone the route as yet of starting a professional corporation again you should speak to your accountant concerning this.
Many people are under the belief that all a Doctor has to do all day is tend to his patients. They forget to realize that whether the doctor has incorporated as a business or not he is responsible for a great deal of administrative work, as well as complex financial accounting.