Professional Corporations

It’s the last day to file your personal income taxes, so tax status and the treatment of income is on my mind. That and the fact that we’ve had a few questions from professional clients recently about the advantages of incorporating their practices means that today we’re going to deal with Professional Corporations.

 

A Professional Corporation is available to select professional groups – lawyers, doctors and accountants, to name a few. From a legal perspective, the corporation does not offer the usual liability limitations associated with a corporate business structure. As the professions in question have a very profound personal aspect to the services they offer, the liability stays right where it should – with the professional providing the service and not with the corporation itself. Contrast this with an ordinary corporation where, absent negligence or malice, the liability for debts and most wrongdoings lies with the business itself.

 

There are significant tax advantages available to a professional corporation however. For those in a position to leave business earnings in the corporation, a substantially reduced corporate tax rate will apply to business income. Of course if those earnings are transferred to an individual, the individual rate will apply, so this is a benefit that must be considered carefully.

 

In addition to preferential tax treatment, certain business expenses may qualify as allowable deductions. The resulting reduction in taxable income can be significant. Together these two benefits can make incorporation a very attractive prospect.

 

If you have any questions about this or any other legal matter, please get in touch with us.

 

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