If you are a physician practicing in Ontario, you may be familiar with medicine professional corporations. Here are answers to the most common questions we receive from those considering incorporation.
If you have additional questions or wish to discuss your particular circumstances, please contact a member of our Business Law group.
What is a Medicine Professional Corporation?
A medicine professional corporation ("MPC") is a corporation, incorporated under Ontario law, through which a physician may practice medicine. Only corporations that meet certain legislated requirements, as described below, will qualify as an MPC and be entitled to practice medicine.
Why would I want an MPC?
The main reason physicians choose to offer their services through a corporation is to benefit from the lower tax rate applicable to corporations, and to take advantage of the related concept of tax deferral. Generally, physicians offering their services personally will be subject to the highest marginal tax rate in Ontario, which is 53.53%. On the other hand, a corporation that qualifies for the Small Business Deduction will generally be taxed at a rate of 12.2% on its first $500,000.00 of active business income. After the corporation pays this corporate tax, any business expenses and pays you what you need to live on, the balance can be invested to grow within the corporation. The funds will eventually be taxed at your personal tax rate at the time of withdrawal; however, you will have had the benefit of the funds that otherwise would have been subject to your personal tax rate the year they were earned.
Additionally, incorporation can facilitate "income splitting", which is the ability to transfer income to a family member in a lower tax bracket by paying dividends to that family member on their non-voting shares. Income splitting thereby lowers the family's overall tax burden. Your accountant can advise you as to whether income splitting can be incorporated into your tax savings strategy.
What happens with my existing business?
If you have been operating as a sole proprietor, you may have contracts with employees and suppliers, own equipment, or lease an office space in your name. A lawyer can assist you with transferring these items to your MPC. If you own the real property where your clinic is located, or if the goodwill of your practice (e.g., the value of the practice's reputation and patient base) has increased, your lawyer and accountant may recommend a "rollover transaction", which will enable you to defer the capital gain on the transfer of these items to the MPC.
What requirements or restrictions apply?
MPCs are distinct from standard Ontario corporations and the relevant legislation contains several requirements and restrictions. For example:
- Only physicians may act as directors and officers of MPCs.
- Only physicians may hold voting shares; however, non-voting shares can be held by certain family members of the physician shareholder or in trust for their minor children.
- There are restrictions on what you may name the corporation, and particular provisions to be included in the corporation's articles of incorporation (the governing document of a corporation).
- Your MPC will require a certificate of authorization to operate as such from the College of Physicians and Surgeons of Ontario, and you must keep the College informed as to any changes in the name, articles, or shareholdings of the MPC.
Most importantly, an MPC may only carry on the practice of medicine and activities related to the practice of medicine (including the investment of surplus funds earned by the corporation). Therefore, while the MPC can generally invest in stocks or own the property you run your clinic out of, you will not want to have the MPC engage in investing in real estate, for example.
Does an MPC shield me from liability?
You may be familiar with the concept of regular corporations offering shareholders protection from personal liability, as the corporation is considered a separate person under the law. However, MPCs are distinct from regular corporations in that the physician shareholder will continue to be liable for professional liability claims, regardless of whether they are made against the physician or the MPC.
What are the costs?
Given the nature of MPCs, you will want to engage a lawyer and accountant to assist you with the incorporation and start-up of the MPC, as well as for annual maintenance and tax filings of the corporation. There is a modest fee charged by the College for annual renewal of the corporation's Certificate of Authorization.
What to do upon Incorporation
Once you are incorporated you will want to ensure that you are entering into agreements in the name of the MPC, rather than in your personal capacity. You will also want to open a bank account for the MPC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.