Medical professionals in Ontario can benefit from incorporating a Medicine Professional Corporation (MPC). This article provides an overview of the incorporation and operation of MPCs in Ontario.
What is a Medical Corporation in Ontario?
A medical corporation in Ontario is a professional corporation established under the Ontario Business Corporations Act (OBCA) and governed by the College of Physicians and Surgeons of Ontario (CPSO). It allows physicians to operate their practice through a corporate entity while benefiting from potential tax advantages, income splitting (where permitted), and limited liability for business debts (excluding professional liability). To incorporate, the corporation must be registered with CPSO, and all issued shares must be owned by a licensed physician. The corporation can only provide medical services, and its name must comply with CPSO naming requirements.
One of the main differences between professional and non-professional corporations is their liability protection level. For example, if a physician operates through a Medicine Professional Corporation, they will not be able to shield themselves from personal liability in relation to their professional obligations. In the event of a claim against the physician for professional misconduct, the physician and the Medicine Professional Corporation will be jointly and severally liable to satisfy all professional liability claims. In such cases, both parties will rely on their professional liability insurance to settle such claims.
Understanding Medical Incorporation Steps
The process of incorporating a medical professional corporation in Ontario involves several steps:
- Jurisdiction: Physicians licensed in Ontario cannot use a federal corporation for their professional corporation. They must use an Ontario corporation.
- Name Selection and Reservation: The proposed name of the MPC must comply with CPSO guidelines and be approved by the Ministry of Government Services. A medicine professional corporation’s name must follow a strict format and should not include additional words or characters. The name must include the physician’s surname as it appears on the CPSO’s register, and may also include their given names or initials. If there are multiple physician members, the name only needs to contain one member’s name. Additionally, the name must include the words “Medicine Professional Corporation” or the French equivalent, “Medecine Societe Professionnelle.”
- Articles of Incorporation: The incorporation process begins with submitting Articles of Incorporation to the Companies Branch of the Ministry of Government Services. The Articles must specify the nature of the business to be undertaken by the MPC and include a clause restricting the business activities to the practice of medicine.
- CPSO Certificate of Authorization: Following incorporation, the corporation must apply for a Certificate of Authorization from the CPSO. The non-refundable application fee is $400 as of February 7, 2025 and is payable online during the application process in the CPSO Member Portal.
Advantages of Incorporating a Medical Professional Corporation
- Tax Benefits: Physicians in Canada can benefit from creating a Medicine Professional Corporation. This allows them to take advantage of the small-business deduction available on active business income for Canadian Controlled Private Corporations. By forming a medical professional corporation, physicians can leave a portion of their business income in the corporation. This defers the payment of personal taxes on this income until they decide to pay themselves.
- Limited Liability: Incorporation is a popular way of safeguarding individual owners and operators from personal liability. This is because a corporation becomes a separate legal entity that can be held responsible for its debts. However, there are certain restrictions on protecting personal liability in professional corporations due to the standards of professional liability associated with various professions. For instance, doctors in a professional corporation cannot avoid medical malpractice claims. A professional corporation offers some protection from creditors in case you borrow money. For example, borrow a loan to finance a new office or buy some equipment. The professional corporation may protect you from personal liability if you cannot repay those loans.
- Planning for the Future: As growing a business often requires a significant investment of capital, having the MPC pay for those expenses may lead to substantial tax savings. Moreover, retaining passive income within the corporation enables income smoothing over time to account for life changes, such as parental leave and retirement planning.
Liability Protection and Risk Management
A Medicine Professional Corporation (MPC) offers liability protection for its shareholders, directors, and officers, but this protection is limited to non-professional obligations. This means that while the corporation is responsible for business-related debts and obligations—such as leases, contracts, and employee salaries—physicians remain personally liable for any professional negligence claims. Whether a claim is made against the physician or the MPC, the physician’s personal liability is not shielded.
To effectively manage these risks, physicians should consider obtaining comprehensive professional liability insurance. This insurance can provide a safety net against claims related to their medical practice. Additionally, ensuring that the MPC is properly incorporated and maintained and that all relevant laws and regulations are adhered to can further minimize personal liability.
Costs and Administration
Incorporating a Medicine Professional Corporation involves significant upfront costs, including legal and accounting fees. Additionally, MPCs must meet ongoing administrative requirements, such as filing annual returns and paying annual fees. These administrative tasks can be time-consuming and may require professional assistance. However, the initial and ongoing costs can be offset by the tax benefits and other advantages of incorporation.
Tax Planning and Optimization
A medical professional corporation can offer tax benefits for physicians, including the ability to defer taxes and reduce personal tax liability. By leaving surplus funds in the corporation, physicians can defer personal taxes until they decide to withdraw the funds. This strategy allows for better financial planning and management.
Physicians can also take advantage of the lifetime capital gains exemption when selling their corporation, significantly reducing the tax burden on the sale. Additionally, claiming tax deductions for business expenses and utilizing corporate investment income can further optimize tax planning. Consulting with a tax professional is recommended to tailor these strategies to the physician’s specific situation, ensuring maximum tax efficiency and compliance.
Summary
Incorporating a medical corporation in Ontario provides physicians a structured way to manage their practice while benefiting from tax planning opportunities and limited liability for business debts. However, strict regulations apply, including CPSO oversight, ownership restrictions, and compliance with corporate governance requirements. While incorporation can offer financial and operational advantages, it does not shield physicians from professional liability. It is recommended that individuals seeking incorporation should seek guidance from legal and accounting professionals to ensure that their corporation is structured and operated in compliance with the applicable laws and regulations.
If you seek guidance from an incorporation lawyer, contact us and see how our firm can help you.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
