Incorporating Your Physiotherapy Practice: Why, When & How?
By: Nataliya Zlotnikov, MSc, HBSc
By: Nataliya Zlotnikov, MSc, HBSc
Did You Learn About Business in School?
The business side of physiotherapy can often be confusing and overwhelming.
In this blog, we hope to shed some light on the subject of incorporation and give you one less thing to worry about so that you can go back to doing what you love, treating patients.
In what follows, we address the basic why's, when's, and how's of incorporation.
- What Is a Corporation?
- Why Incorporate: Advantages of Incorporation
- Disadvantages of Incorporation
- When to Incorporate?
- Provincial vs. Federal Incorporation
- Canadian Government Incorporation Fees
- How to Incorporate
- It Gets More Complicated if You're a Physio
I. What Is a Corporation?
What is all the buzz about and what is a corporation anyway?
A corporation is a legal entity that is separate and distinct from its owners and can enter into contracts, sue and be sued, own assets, remit taxes, and borrow money from financial institutions. An essential characteristic of a corporation is that it separates the company’s liabilities from those of the founders (Ontario Business Central, 2021).
II. Why Incorporate: Advantages of Incorporation
There are many benefits to incorporating, however, they may not all apply to you.
We do not aim to give legal or business advice to our readers. Any advantages and disadvantages discussed below will vary depending on your particular situation.
If you require legal and financial advice about incorporation, we advise that you contact a professional such as a lawyer/accountant.
Source: (The Balance Small Business, 2020)
- Likely reduced tax rates: business tax rates are much lower than personal tax rates.
- Optimized income and taxes: if you incorporate your business, you can determine when and how you receive income from the business, which is a real tax advantage. Instead of taking a salary from the business when the business receives income, being incorporated allows you to take your income at a time when you'll pay less in tax.
- Limited liability: individual shareholders' liability is limited to the amount they have invested in the company.
- Increased credibility: people perceive corporations as more stable than unincorporated businesses.
- Increased business: the increased credibility of corporations may increase your business.
- Easier access to financial support: lenders will often give corporations lower rates for loans. Corporations also have easier access to financing.
- Perpetual existence: unlike a sole proprietorship, a corporation has an unlimited lifespan—it will continue to exist even if the shareholders die or leave the business, or if the ownership of the business changes.
III. Disadvantages of Incorporation
Some of the possible disadvantages of incorporation include:
- Expensive start-up costs: corporations are more expensive to set up than other business structures. A corporation is a more complex legal structure than a sole proprietorship or partnership, so it naturally carries more costs to set up.
- Time-consuming maintenance of corporate records: there is a lot more paperwork involved in maintaining a corporation than a sole proprietorship or partnership. Corporations, for example, must maintain a minute book containing the corporate bylaws and minutes from corporate meetings. Other corporate documents that must be kept up to date at all times include the register of directors, the share register, and the transfer register.
- Additional tax filings: when you incorporate your small business, you have to file 2 tax returns each year, one for your personal income and one for the corporation.
- Liability may not be as limited as you think: the prime advantage of incorporating—limited liability—may be undercut by personal guarantees or credit agreements.
- No personal tax credits: corporations are not eligible for personal tax credits. Every dollar a corporation earns is taxed. As a sole proprietor, you may be able to claim tax credits a corporation could not.
- Closing a corporation is more difficult: closing a corporation requires passing a corporate resolution to dissolve the corporation, winding up payroll accounts, and sending a copy of the certificate of dissolution to your provincial authorities (or the Canada Revenue Agency). You will also need to file your final tax returns for the corporation.
IV. When to Incorporate?
Basically, once the business generates more income than you need for your living expenses, incorporation can be advantageous (TurboTax, 2022).
Most financial professionals agree that in order to consider incorporating, your income should exceed $75,000 per year, and of that $75,000, you should have at least $25,000 retained (OPA, 2020).
For example, if you're earning $75,000 and spend $50,000 to live on; you can leave $25,000 in the corporation, and pay a reduced income tax on that amount (TurboTax, 2022).
V. Provincial vs. Federal Incorporation
In Canada, you can choose to incorporate provincially, federally, or both.
One of the benefits of incorporating provincially is that your company will not have to pay any annual fees (federal annual fees are $20). On the other hand, provincial incorporation does tend to be more expensive overall than federal incorporation.
There are certain types of businesses that are required to incorporate provincially rather than federally. Doctors, lawyers, and dentists, for example, are restricted to provincial incorporation (PMR Law, 2020).
However, this seemed somewhat unclear for the physiotherapy profession, we, therefore, consulted with an agent of Corporations Canada, Canada's federal corporate regulator. They advised us that physiotherapists can incorporate both provincially as well as federally.
Since the reason to incorporate provincially remained unclear to us, we also reached out to financial specialist Brian Shumak, president of Brian Shumak Financial Services Inc., to confirm the information provided to us from Corporations Canada. We asked Brian whether PTs had to incorporate provincially or whether they could also incorporate federally.
Brian said that "given that the College will require them to register the corporation, it likely is best to incorporate provincially for each province." But he does not believe that there is an issue with federal incorporation as well."
VI. Canadian Government Incorporation Fees
The cost of incorporation differs from province to province. Below are the fees to incorporate in different jurisdictions in Canada:
Data source: Ontario Business Central, 2022
VII. How to Incorporate
To incorporate provincially, follow this Government of Canada link. There, you will find a link directing you to incorporation information for each province and territory.
Conversely, if you would like to incorporate federally, the 4 steps—name your corporation, create your articles of incorporation, establish the initially registered office address and the first board of directors, submit and pay the fee—of federal incorporation are listed here in greater detail.
VIII. It Gets More Complicated if You're a Physio
The College of Physiotherapists of Ontario (CPO) provides a useful Initial Professional Incorporation Guide and FAQs that can be found here.
It includes many important specifications about incorporation specific to physiotherapists such as:
- Naming your corporation: while most corporations can choose between a word name or a numbered name, a physiotherapy corporation shall not have a number name; it must also include the surname of one or more shareholders of the corporation as the surname is set out in the College Register, and must indicate the health profession practiced by the shareholders. The corporate name must include the words “Professional Corporation” or “Société Professionnelle.”
- Additional paperwork: an application for a certificate of authorization must be submitted to the Registrar of the College, along with the required supporting documentation and fee.
- Membership: any shares of the corporation may be owned only by physiotherapists.
- Business address: the business address must be the actual corporate address of the corporation and not the address of the corporation’s legal counsel.
If you are thinking about incorporating in Ontario, it is recommended that you review this document and contact a finance professional.
To find information pertaining to other provinces, please check with your provincial College.
If you are in search of a financial professional to consult with, Brian Shumak (listed on the OPA site), with whom we consulted for a few items discussed in this blog, waives his initial consulting fee of up to $2500 for all OPA members in good standing.
Brian Shumak, B.Sc., CLU, CFP, TEP, President of Brian Shumak Financial Services Inc., has been specializing in financial planning for healthcare practitioners for over twenty years. In addition, he speaks to graduating physiotherapists about managing their money wisely throughout the Province of Ontario.
You can contact Brian at firstname.lastname@example.org, or 1-855-PLANWIThbrian (1-855-752-6948).
Date written: 14 Jan 2022
Last update: 28 Jan 2022