Physicians practicing in Ontario are permitted to incorporate their medical practices and operate as a medicine professional corporation (“MPC”). The law grants corporations certain powers that may be financially beneficial for physicians, such as the ability to hold assets and incur liabilities; as well as certain added responsibilities which may be somewhat onerous, such as additional paperwork and fees. For these reasons, recent graduates, solo or small groups of practitioners and newly resident physicians may be interested in exploring this option. This series of blogs explores the following topics:
- Part 1: Advantages of incorporating as an MPC
- Part 2: Pre-incorporation considerations
- Part 3: Key steps in MPC incorporation
Key Steps in PMC Incorporation
Having reviewed the advantages and pre-incorporation considerations of an MPC, if a physician or a group of physicians should decide to incorporate, the key steps towards successfully incorporating an MPC listed below would apply.
Incorporating a medical practice can be a complex process. It is advisable that practitioners start by assembling a team of advisers including legal, accounting/tax and financial expertise.
Once a lawyer has the following requisite information to file the application for incorporation, receiving the approved Articles of Incorporation from the government generally takes 1-2 days. The necessary information is as follows:
- Jurisdiction: MPCs must be incorporated as a provincial corporation under the Business Corporations Act (Ontario).
- Name: Naming an MPC requires adhering to strict rules. A corporate name must include the physician’s surname as it appears on College of Physicians and Surgeons of Ontario’s (“CPSO”) register. It may also include given names or initials and “Dr.”. If the prospective MPC has more than one physician member, its name only requires one of their respective names. The name must also include the words “Medicine Professional Corporation”.
- Issuing Shares: The type and number of shares being issued to the physician(s) and their family members is most often determined by coordinating with the physician’s accountant and lawyer. Three common classes of shares that are often issued include:
- Special Shares: Special shares have their values frozen upon issuance (e.g $1.00 per share) and are typically issued to family members. The MPC’s board of directors is then able to declare variable amounts of dividends (or no dividends at all) to the family member shareholders assuming they each hold a different class or series of shares. The board of directors may easily redeem the Special Shares at any time because their value was frozen at issuance.
- Common Shares: Common Shares are usually issued to the physician shareholder and are also the voting shares of the MPC.
- Preference Shares: Transferring an existing medical practice to an MPC can be accomplished on a tax-free basis by having the physician and MPC engage in a section 85(1) rollover agreement (as permitted under the ITA). This “rolls over” the practice from the physician to the MPC at its tax values. As part of the consideration for the rollover, the MPC issues Preference Shares to the physician at the fair market value of the practice as at the time of transfer.
- Restrictions: There are several nuances between a standard for-profit corporation and an MPC. For example, the Articles of an MPC must provide that “the corporation cannot carry on a business other than the practice of medicine and activities related to or ancillary to the practice of medicine”. Furthermore, restrictions should be put in place ensuring that only shareholders who are members of the CPSO can become officers or directors of the MPC.
- Certificate of Authorization
Once the MPC has been incorporated, a copy of the Articles can be used to establish a corporate bank account or change the name on the existing account. An application to the CPSO is also required and must be submitted along with a fee of $350.00 in order to obtain a Certificate of Authorization. Without this certificate, the corporation is not permitted to practice. It generally takes about two to three weeks to obtain a Certificate of Authorization from the CSPO, but the Certificate will be dated and take effect from the date CPSO received the completed application.
A statutory declaration executed by a director of the MPC must be completed not more than 15 days prior to submitting the application to CPSO. It certifies that the MPC is in compliance with applicable law, will only carry on the business of practicing medicine and that the information provided to CPSO is accurate and complete. This must be signed in the presence of a lawyer or notary public.
Organize the Corporation
As with every corporation, the physician’s lawyer will prepare a comprehensive minute book that contains all the required corporate records such as by-laws, resolutions, certificates and officer/director/shareholder registers.
- Miscellaneous (if necessary):
- Rollover Agreement to Transfer Practice to the MPC: If transferring an existing practice to the MPC, the physician’s lawyer and accountant will prepare a Section 85(1) Rollover Agreement.
- Assign Lease: If the physician’s existing practice is operating as a tenant under a lease it may be necessary to get the landlord’s consent prior to assigning the lease to a new entity (i.e. the MPC). The lease provisions should be reviewed to ensure the appropriate assignment process is followed.
- Employment Agreement: It may be beneficial to prepare an employment agreement whereby the physician personally agrees that all services being provided to patients are being made on behalf of the MPC and the physician as trustee for the MPC holds payments received by the physician personally. It may be that if a physician receives these payments personally without an agreement the Canada Revenue Agency will tax the physician at personal income tax rates rather than at corporate tax rates in the MPC.
- Renewal of Certificate of Authorization: MPCs must apply for renewals of authorization on the anniversary of the certificate’s date of issue. Administrative filing charges will apply.
We are always happy to discuss any of the steps enumerated above, and answer any questions you may have about establishing an MPC.
Note: Tax information was graciously provided by our friend Scott Vloet, Partner at Vloet & Kan LLP.