By Raz Toor, Lawyer and Founder of Falcon Law PC
For an Ontario lawyer moving into solo practice or building their own firm, incorporating a professional corporation is often one of the first major structural decisions.
A lawyer professional corporation can provide a useful vehicle for earning professional income, retaining funds within the corporation, entering contracts and building a law practice as a separate business organization.
But it is not the same as incorporating an ordinary Ontario company.
A corporation cannot simply be registered and immediately begin practising law. The corporation must comply with Ontario’s professional-corporation legislation and obtain a Certificate of Authorization from the Law Society of Ontario before practising law through the corporation.
I’m Raz Toor, the founder of Falcon Law PC. As both a lawyer and business owner, I view the professional corporation as only one piece of setting up a law practice. The corporation has to work alongside the lawyer’s Law Society obligations, accounting, banking, contracts, tax planning and actual practice model.
What Is an Ontario Lawyer Professional Corporation?
Ontario permits lawyers licensed by the Law Society of Ontario to practise through a professional corporation.
The corporation is incorporated under Ontario’s Business Corporations Act, but it is also subject to the Law Society Act, Law Society by-laws and the lawyer’s continuing professional obligations.
That is an important distinction.
An ordinary Ontario corporation exists once the incorporation is completed. A lawyer professional corporation also requires authorization from the Law Society before the corporation can practise law.
For a broader explanation of how professional corporations differ from ordinary business corporations, see our guide to Professional Corporation vs. Regular Corporation in Ontario.
A Lawyer Professional Corporation Must Be Incorporated in Ontario
A lawyer intending to obtain a Law Society Certificate of Authorization should incorporate the professional corporation under the Ontario Business Corporations Act.
This is not a situation where the lawyer simply chooses between Ontario and federal incorporation based on preference.
The Law Society currently directs licensees intending to establish a professional corporation to incorporate under the Ontario statute. A federal corporation should therefore not be created on the assumption that it can later simply be used as an Ontario lawyer professional corporation.
Getting the Articles right at the beginning also matters because the professional corporation has statutory restrictions that would not ordinarily appear in the Articles of a general business corporation.
Who Can Own the Shares?
For a professional corporation established for the practice of law, all issued and outstanding shares must be legally and beneficially owned, directly or indirectly, by one or more persons licensed to practise law in Ontario.
That means a lawyer should not borrow the ownership structure used for certain other professional corporations and assume that a spouse, child or other family member can simply receive non-voting shares.
Medicine Professional Corporations, for example, have profession-specific rules that can permit certain family-member share ownership. Those rules should not be imported into a lawyer professional corporation.
A non-lawyer spouse or investor therefore cannot simply be added as a shareholder of a lawyer-only professional corporation.
Ontario law also generally requires the officers and directors of a professional corporation to be shareholders of the corporation.
Can More Than One Lawyer Own the Corporation?
Yes.
A lawyer professional corporation does not have to be owned by a single lawyer. Two or more Ontario lawyers can potentially own the corporation together.
Where that happens, however, the lawyers should think beyond the initial incorporation.
Questions concerning voting control, profit distributions, capital contributions, disability, retirement, departure from the firm, death and the transfer of shares can become significant once several lawyers own the corporation.
Depending on the arrangement, a properly drafted shareholder agreement may therefore be just as important as the Articles themselves.
The Corporation Cannot Carry On an Unrelated Business
A lawyer professional corporation is not intended to become a general-purpose corporation for every business venture the lawyer owns.
Its Articles must restrict the corporation to the practice of law and activities related or ancillary to that practice. The legislation expressly permits activities such as investing surplus funds earned by the corporation.
But if the lawyer also owns an unrelated technology company, consulting company, real estate venture, restaurant or other business, that activity should not simply be placed inside the law professional corporation.
A separate ordinary corporation may be more appropriate for unrelated commercial activities.
For broader advice on business corporations, holding companies and ownership structures, see our legal services for entrepreneurs and business owners.
The Corporate Name Has Special Requirements
The professional corporation cannot simply use any available Ontario corporate name.
Ontario’s professional-corporation rules require the name to include “Professional Corporation” or the French equivalent, and the corporation cannot have a numbered name.
The name must also comply with the applicable Law Society requirements.
This is one reason the name and Articles should be settled before the incorporation is filed rather than incorporating an ordinary company first and attempting to convert it afterward.
The Law Society Certificate of Authorization Is Essential
Incorporating the company with Ontario does not complete the process.
The corporation may only practise law in Ontario once it has received a Certificate of Authorization from the Law Society.
The Law Society currently administers the application through LSO Connects. The application requires the corporation’s Articles of Incorporation and the applicable non-refundable fee.
The Law Society recommends reviewing its professional-corporation requirements before incorporating because Articles that do not comply may need to be amended before authorization can be issued.
The Certificate Has to Be Renewed Every Year
The regulatory work does not end when the initial Certificate of Authorization is issued.
The Law Society currently requires the Certificate to be renewed through LSO Connects by December 31 each year, regardless of when during the year the certificate was originally issued.
If the certificate expires, the corporation is no longer authorized to practise law or provide legal services while the authorization is not in force.
The Law Society also states that a Certificate of Authorization that remains unrenewed for 12 months after expiry is automatically revoked.
For that reason, the professional-corporation renewal should become part of the firm’s annual compliance calendar together with its ordinary corporate, tax and Law Society obligations.
Does Incorporation Protect the Lawyer From Professional Negligence?
No.
This is an important limitation of the professional-corporation structure.
Ontario’s Business Corporations Act specifically provides that practising through a professional corporation does not limit the lawyer’s professional liability.
A lawyer therefore cannot use the corporation as a shield from responsibility for professional errors or omissions.
Incorporation also does not remove the lawyer’s obligations under the Rules of Professional Conduct or eliminate applicable professional-liability insurance requirements.
The professional corporation is a business structure. It is not a mechanism for avoiding professional responsibility.
Why Do Lawyers Incorporate Then?
For many lawyers, the main reasons are business organization and tax planning.
A professional corporation earns the practice’s professional income and incurs practice expenses as a separate taxpayer. Where the lawyer does not need to withdraw all of the corporation’s earnings for personal spending, incorporation may allow funds to remain inside the corporation and potentially create tax-deferral and investment-planning opportunities.
That does not mean every lawyer automatically saves tax by incorporating.
A new sole practitioner who needs to withdraw virtually all firm income personally may obtain less immediate tax benefit than an established practitioner who can leave significant retained earnings inside the corporation.
Salary, dividends, corporate investments, associated corporations and other tax considerations can also affect the analysis.
I would therefore generally have the lawyer coordinate the decision with their accountant before the corporation and compensation structure are finalized.
A Professional Corporation Can Also Help Organize the Practice
There are practical benefits beyond taxation.
The professional corporation can become the contracting entity for the law practice. It may employ staff, retain contractors, enter leases and technology agreements, pay operating expenses and maintain the practice’s business relationships.
For a lawyer building a long-term practice rather than merely testing out occasional self-employment, that can provide a cleaner organizational structure.
It can also make future ownership changes easier to document where another eligible lawyer eventually joins the corporation.
Incorporating an Existing Law Practice Requires a Transition
A lawyer who has already been practising as a sole proprietor should not treat the new corporation as though nothing changed.
Once the professional corporation becomes the vehicle through which the practice operates, the lawyer should review which contracts, accounts, employees, service arrangements, invoices and other business relationships need to be updated to reflect the new legal entity.
The accounting and tax transition should also be coordinated with the firm’s accountant.
Any practice-related banking, trust accounting or Law Society reporting changes should be handled consistently with the applicable regulatory requirements.
In other words, obtaining the Certificate of Authorization is a key step, but it is not the entire practice transition.
The Minute Book Still Matters
A professional corporation remains an Ontario corporation and should have proper corporate records.
That includes the organizational resolutions, share issuances, securities register, director and officer records, by-laws and subsequent corporate resolutions.
This becomes particularly important later if another lawyer becomes a shareholder, the share structure changes, the lawyer reorganizes the practice or the corporation is eventually sold, wound down or transferred as part of succession planning.
A professional corporation should not be treated as simply an LSO registration with a corporate number attached to it.
What Happens if a Lawyer Shareholder Stops Being Eligible?
Because ownership is tied to professional status, changes in a shareholder’s ability to practise law can create corporate consequences.
Retirement, death, licence changes or other circumstances affecting eligibility may require the corporation and its remaining shareholders to deal with the affected shares in accordance with the legislation and the corporation’s governing documents.
This becomes much more important in a multi-lawyer professional corporation than in a single-lawyer firm.
The shareholder agreement and succession planning should anticipate these events before they occur.
What About Lawyers and Paralegals Practising Together?
Ontario’s Law Society Act also permits appropriately licensed lawyers and paralegals to establish a professional corporation together for the purpose of practising law and providing legal services.
That is a distinct structure with its own ownership and practice considerations.
A lawyer considering that type of arrangement should therefore design the corporation around the proposed mixed practice rather than first creating a conventional lawyer-only corporation and assuming another licensee can simply be added later without review.
Professional Corporation vs. LLP
Lawyers also sometimes confuse a professional corporation with a limited liability partnership.
They are different structures.
A professional corporation is a corporation through which the lawyer practises. An LLP is a form of partnership commonly used where multiple lawyers practise together.
A professional corporation can itself participate in certain partnership or LLP structures, but the legal and liability consequences need to be considered carefully.
For a solo lawyer, a professional corporation is often the more relevant comparison with practising personally as a sole proprietor. For a larger multi-lawyer practice, partnership and LLP structures may also need to be considered.
How Falcon Law PC Can Help
Falcon Law PC assists Ontario lawyers and other regulated professionals with corporate structuring and professional corporations.
For a lawyer professional corporation, the work can include preparing the Ontario incorporation, structuring the shares and governing documents, preparing the initial minute book, assisting with the Law Society Certificate of Authorization process and advising on later ownership or corporate changes.
Where tax planning drives the proposed structure, we can coordinate the legal work with the lawyer’s accountant.
For broader corporate structuring matters, see our Business & Corporate legal services.
Should an Ontario Lawyer Incorporate?
For an established solo lawyer or a lawyer building a long-term private practice, a professional corporation can be a useful structure.
But I would not start with the assumption that incorporation is automatically the right answer.
I would first consider how much the practice earns, how much income the lawyer needs to withdraw personally, whether other lawyers may eventually become owners, how the practice will operate and what the lawyer’s accountant recommends from a tax perspective.
If incorporation makes sense, the corporation should then be established as a proper Law Society professional corporation from the outset rather than as an ordinary company that needs to be repaired later.
This article is intended for general informational purposes only and does not constitute legal, tax, accounting or professional-responsibility advice. The requirements applicable to a lawyer professional corporation should be reviewed based on the proposed ownership and practice structure and the Law Society rules in force at the relevant time.