Professional Corporations for Chiropractors
Chiropractor Professional Corporations
Historically, like other healthcare professionals, chiropractors were not able to practice through corporations. Accordingly, chiropractors missed out on significant tax savings. Today, chiropractors are able to take advantage of tax savings and incorporate with certain restrictions. Sections 103 to 115 of the Health Professions Act allows chiropractors to provide professional services through a professional corporation. Further, because a professional corporation is also a business entity, it must also comply with Alberta’s Business Corporations Act (“BCA”).
What Is A Professional Corporation?
Much like regular corporations, professional corporations are a separate legal entity. But, unlike regular corporations, professional corporations are subject to various restrictions. They have restrictions on the corporate name and its ownership structure. Professional corporations can operate to shield liabilities from creditors such as landlords and suppliers. However, this is not the case for chiropractors. Chiropractors operating through a professional corporation are still personally liable to clients for malpractice. Thus, it is important to maintain professional liability insurance.
In Alberta, various professional bodies allow members to practice through a professional corporation. These include:
- physicians;
- dentists;
- optometrists;
- physiotherapists;
- chiropractors; and
- lawyers.
How Does A Chiropractor Professional Corporation Differ From Regular Corporations?
Chiropractor professional corporations in Alberta must be incorporate under the laws of the Province of Alberta. You cannot incorporate Alberta professional corporations federally or in any other jurisdiction.
Furthermore, there are restrictions on the corporate name as set out in the College of Chiropractors of Alberta By-laws. For example, the name of the corporation must include the chiropractor’s surname or the surname of a Regulated Member of the College, who are shareholders of the corporation, followed by the words “professional corporation”, or “professional chiropractor corporation”. For example, a chiropractor professional corporation may have the name, “J. Smith Professional Corporation”. The chiropractor whose name is in the corporate name must be a shareholder in the professional corporation. After selecting a name, you should also conduct a corporate registry search to determine if your corporate name is unique. The name search and your professional corporation’s Articles of Incorporation must be submitted to the College of Chiropractors of Alberta’s Office for approval.
Moreover, there are restrictions on what activities can be provided through the chiropractor professional corporation. All activities should fall under the practice of a chiropractor. Generally, any activities relating to the business or investments that are not relation to the chiropractor practice are not allowed. For example, if you own or rent real estate over and above what is generally required for a chiropractor practice, it would likely not constitute an activity under the practice of a chiropractor.
What Are the Benefits Of Incorporating A Professional Corporation?
As with other Canadian privately held companies, the most significant advantage is the small business tax deduction. This deduction results in reductions in federal and provincial tax payable on business income up to certain limits. The corporation can pay taxes at the much lower corporate tax rate of 13.5% rather than the highest personal tax rate of around 48%. You may choose to take out a lesser amount than the full amount of your corporate earnings until a later date when you are in a lower tax bracket.
Income Splitting Potential
Another tax benefit is that professional corporations allow you to issue salary or dividends to other shareholders such as family members. This is a benefit when the individuals are in lower tax brackets, thus reducing your overall tax liability. However, from a business perspective, family members that become shareholders are entitled to all the rights under the BCA. Such rights can be far-reaching, even if the family member is a non-voting shareholder. For example, in the event of a divorce, shares are matrimonial property. Prior to restructuring your professional corporation to involve family members as shareholders, it is recommended that you have a shareholder’s agreement in place to address how shares will be treated upon the death or marital breakdown of shareholders.
When Should I Register A Professional Corporation?
A chiropractor may apply for a professional corporation initially when they set up practice, after practicing for awhile or when joining a professional corporation group practice.
Liability Under Professional Corporations
Pursuant to the BCA, liability of shareholders in a professional corporation have limits. Accordingly, if creditors sue a professional corporation, liability of the corporation will solely be regarding the assets of the corporation. However, if someone sues a chiropractor for professional negligence such as malpractice, your professional insurance will determine the liability. In other words, your professional corporation can only shield you from personal liability in certain instances including when you borrow money or take out a loan, unless you sign a personal guarantee.
Help With Incorporating Your Professional Corporation
For chiropractors, a professional corporation can be a valuable business entity that may limit your personal liability and allow you to achieve significant tax savings. As the process to incorporate professional corporations are very technical and you must adhere to the requirements of the College of Chiropractors of Alberta’s By-laws, we recommend that you seek assistance from a lawyer. The corporate lawyers at Kahane Law Office will be happy to assist you with the professional corporation process. We can be reached at 403-225-8810 locally in Calgary, Alberta or toll-free at 1-877-225-8817 or email us directly here.