Should you incorporate your law practice? What a professional corporation really changes

What the PC shields — and the liability that stays yours

Incorporation never limits your liability for professional negligence. Ontario's Business Corporations Act says so expressly: practising through a professional corporation leaves your personal responsibility for professional acts untouched, and your LawPRO coverage remains mandatory. Anyone selling incorporation to lawyers as lawsuit protection is selling the one thing it cannot do.

What the corporation does contain is the commercial side of running a practice. Here is where common exposures actually land once a PC is in place:

Read the table honestly and the conclusion is plain: a law PC is a tax structure first and an asset-protection tool a distant second.

Authorization comes before practice

An Ontario law PC cannot provide legal services until the Law Society of Ontario issues it a certificate of authorization, and that certificate must be renewed every year. The corporation is incorporated under the OBCA first, then authorized under the LSO's by-laws — two separate steps, in that order.

The ownership rules are stricter than any other Ontario profession we work with. Every issued share must be held by a licensee — lawyers, paralegals, or both in a combined practice — and directors and officers must be shareholders. There is no room for a spouse, a family trust, or a holding company anywhere on the share register. Physicians and dentists get family non-voting shares; lawyers do not.

The name has to follow the formula

Your corporation's name must include the words Professional Corporation (or the French equivalent) and must satisfy both the OBCA and the LSO's by-laws before a certificate will issue. In practice most sole practitioners build the name from their own surname, the way the firm is already known, and a NUANS search still applies because this is a named Ontario corporation. A name that is misleading, promotional, or disconnected from the licensees behind it will not get authorized, so we settle the name before filing articles — not after.

The tax case runs on deferral, not splitting

Because only licensees can hold shares, the familiar playbook of paying dividends to a lower-income spouse is simply unavailable, and the honest tax case is retention. Fee income left inside the PC is taxed at roughly 12.2% instead of a personal marginal rate that can top 50%, and that spread — nearly forty points — compounds on every dollar you do not need to live on.

The deferral has natural uses in a law practice. It funds disbursements a contingency file can carry for years, smooths the lumpy income of litigation wins between calendar years, and pays down practice debt with cheaper dollars. Family members can still be paid a salary from the PC, but only for real work at a rate you could defend to CRA.

Practising through the PC day to day

The corporation becomes the entity that bills clients, pays staff, and holds the lease — while the professional obligations stay exactly as they were. Your trust account operates under the same LSO record-keeping rules as before; incorporation changes trust accounting by not one dollar. Draws become planned salary or dividends instead of ad-hoc transfers, and the compliance calendar adds a T2 return, an Ontario annual return, and the LSO certificate renewal.

If your practice bills American clients or you are called in a US state as well as Ontario, the W-8 forms, treaty positions, and dual-bar questions live on our cross-border tax page for lawyers. For the corporate file itself — articles, authorization, registers, and the annual upkeep — see our incorporation and compliance service.

Source: Law Society of Ontario.