Do You Need a Professional Corporation? My Experience and the Truth Behind the Confusion

The results are in, and I am going to answer an important but common question: Do I need a professional corporation (PC)??

Based on my recent poll, 43% of you feel like you can’t get good advice about whether you need a PC, and 29% think your setup might be wrong.

Let me share my personal experience and what I’ve learned over the years.

This post might get me into trouble. Some might feel I am overstepping. But after years in business and time as a regulator, I am confident about what I have learned.

Disclaimer: I am not a business lawyer or an accountant. I am also no longer working at COTO. I am a lowly OT who had to figure this one out the hard way. But? I think I've got it.

When I was merging Entwistle Health Solutions with Power OT Services I spent a lot of time figuring out how to structure that new business.

• Regular Partnership (non-Corp)?
• Partnership Corp?
• Separate Professional Corps?
• Professional Corp (joint because there were two of us)?
• Regular Incorporation with any shareholders we wanted?

We were selling OT services and also had ancillary services such as OTA. We had no intention (at the time) of selling non-OT services like PT or SLP.

I hired three lawyers. Two out of three told me the same thing: If you are selling OT services under a corporation, you MUST be a PC. One told me we could be a regular corp.

We had two accountants. One said we could be a regular corporation. One said we had to be a PC.

Then I hired a tax lawyer. He was BLUNT. "A regular corporation would be ILLEGAL."

Oh, okay.

I called COTO. They were unhelpful:

Them: "If you get a PC you need to register it with us."

Me: "But do I need one to be in business as an OT?"

Them: "We won't give you legal advice."

Hmmm.

When I worked at COTO I aimed to be more helpful. How can I provide better guidance to OTs about this? So, I read and I sought legal counsel and I dove into this to understand it. Then, I tried to reframe it so I could explain it.

Here is what I came up with.

A PC is simply YOU with a TAX ADVANTAGE. So, if YOU are an OT then YOU can ONLY offer tax-advantage OT (i.e. getting dividends and such) under a PC.

Your PC CANNOT offer other professional services like physiotherapy. Why? Because the PC is YOU and YOU are not a PT. The PC is a one-trick pony doing only the thing YOU are licensed to do.

But what if you want to offer multi-disciplinary services? Then, you will need more than one business. One for the services of YOUR PROFESSION (i.e. OT) and another one for everything else (which could be a regular corporation, or a management corporation, or a separate non-corporation).

To summarize, here is my attempt at clarity:

Are you a professional billing for those same professional services (the ones you are licensed to provide) and you want/need a tax advantage? PROFESSIONAL CORPORATION.

Are you a professional billing for OTHER professional services (ones you are not licensed to provide) and you want/need a tax advantage? REGULAR CORPORATION.

Are you doing both and need a tax advantage? TWO CORPORATIONS – one for your professional services, one for the other services.

What if you don't need a tax advantage? NON-CORPORATION of any kind you wish (partnership, sole proprietor, etc.).

What about other shareholders (i.e. a spouse)? CAN’T under a PROFESSIONAL CORPORATION unless that spouse is licensed to provide the services of the same profession (i.e. they are an OT too).

Can you still be sued if you are a PC? YES. Because it’s YOU with a tax advantage. You can always be sued, regardless of your business model. A regular corp. doesn’t “corporate veil” you out of professional liability.

The biggest decision is if you need a tax advantage in the first place. Most of you won't until your business makes sufficient funds. Your accountant can tell you when you cross that line.

So based on the poll: 43% of you feel you can't get good advice, and 29% believe your setup might be wrong. If that's you, I am happy to chat.

Was this helpful? Comments please.