Starting or growing a legal practice brings with it a myriad of decisions that can have significant implications for the future of the business. Among these decisions, the choice of business structure stands out, especially the question: “Should I incorporate my law practice?”
Incorporating a law practice in Ontario involves a unique set of rules and considerations, particularly when understanding the guidelines set by the Law Society of Ontario (LSO). Below, we will explore the reasons for and against incorporating your law practice and delve into the rules set by the LSO regarding professional corporations.
Benefits of Incorporating Your Law Practice:
- Limited Liability: One of the primary reasons to incorporate is to limit personal liability. In a corporation, it’s the corporation that bears the liability for business debts and not the individual shareholders, provided they adhere to corporate formalities and responsibilities.
- Tax Advantages: Corporations can benefit from potential tax savings. They might qualify for lower corporate tax rates than personal tax rates and can take advantage of income splitting, tax deferral, and other tax-planning strategies.
- Perpetual Existence: Corporations can continue indefinitely, regardless of changes in ownership or shareholders. This can make succession planning and the sale or transfer of the business smoother.
- Enhanced Credibility: For some clients, dealing with an incorporated entity gives an added sense of professionalism and stability.
Considerations and Challenges:
- Cost: Incorporating a practice requires an initial outlay for setup, ongoing annual fees, and increased accounting costs.
- Complexity: Running a corporation involves more paperwork, annual filings, and increased administrative responsibilities.
- Professional Liability: It’s essential to note that while incorporating may limit your personal liability concerning business debts, it does not shield you from professional liability.
Professional Corporation Rules by the LSO:
The LSO has strict guidelines for lawyers wishing to form a professional corporation:
- Naming: The name of the professional corporation must include the words “Professional Corporation” or “Société professionnelle” and must comply with the requirements and restrictions regarding the naming of law firms.
- Shareholders: All of the shareholders of the professional corporation must be members of the LSO.
- Liability: Incorporating does not limit a lawyer’s professional responsibility. The LSO requires professional liability insurance for all practicing lawyers.
- Certificate of Authorization: A professional corporation cannot practice law without a Certificate of Authorization from the LSO.
- Annual Renewal: The Certificate of Authorization must be renewed annually.
- Changes: Any changes in the corporation, such as changes in shareholders or address, must be reported to the LSO promptly.
Incorporating a law practice is a significant decision that requires careful consideration of the benefits, challenges, and responsibilities. If you are contemplating this move, seeking specialized legal advice is paramount.
For detailed guidance tailored to your unique circumstances and further inquiries about incorporating your law practice, contact Falcon Law PC at 1-877-892-7778 or email email@example.com.