What is the best business structure for you?

You may familiar with the terms “associate,” “independent contractor,” or “practitioner.” All of these are used to describe your relationship to the clinic you work.

Here are the different types of businesses you can have:

Sole Proprietorship
Professional Corporation
Clinic Corporation (or general corporation)

Sole Proprietorship

A sole proprietorship is an unincorporated business that one person owns. It is the simplest kind of business structure.

If you are a sole proprietor, you pay personal income tax on the net income generated by your business in the year it is generated. Sole proprietors only file one annual tax return.

ADVANTAGES:

⁠A Sole Proprietorship is the simplest and least expensive way to set up your business
There are less fees and paperwork compared to the other types of businesses.
You own 100% of the business and get to make all the decisions!
You as the business owner receive all the profits directly and any income from your business is reported in your personal taxes

DISADVANTAGES:⁠

There is no legal separation between you and the business in a Sole Proprietorship. ⁠
⁠You are personally responsible for any debts or liabilities of your business.
Owners must pay self-employment taxes on business income in the year they earn the income.

Corporations overview

A corporation is a separate legal entity. It can enter into contracts and own property in its own name, separately and distinctly from its owners.

You set up a corporation by completing articles of incorporation and sending the documents to the appropriate provincial, territorial, or federal governments.

A corporation has to file a T2 corporation income tax return each year. It corporation usually pays its taxes in monthly or quarterly instalments. The tax year for a corporation is its fiscal period. This means that December 31 may not be your corporate tax year-end.

As a health professional, there are two types of corporations you can create: a Professional Corporation or a Clinic Corporation.

Professional Corporations

Under your provincial Regulated Health Professions Act, all regulated health professionals have the option of incorporating their practice as a professional corporation.

Note: this rule varies by province. If your profession is not included in The Regulated Professions Act for your province, you cannot create a professional corporation.

In a professional corporation, the service of your profession is completed by the corporation. You must register your professional corporation with your college or association.

Key features of professional corporations are:

Professional liability is not limited by incorporation.
There are specific naming requirements for your professional corporation
The shareholders of a professional corporation must be members of the College and must be from the same profession.
The professional corporation may not carry on a business other than the practice of the profession.

ADVANTAGES:

Low corporate tax rates if you make less than $500,000 per year
Only taxed personally as you take money out of the corporation
Tax planning opportunities with deciding how and when to pay yourself
Opportunity to income split with family members

DISADVANTAGES:⁠

⁠Additional fees including the cost to incorporate and annual corporate tax return
You must keep the corporate transactions separate from your personal
- Additional bank accounts
- Accounting software
- Tracking both assets and income

Clinic Corporations

A clinic corporation can have any shareholder and have multiple health & wellness disciplines working as contractors for the corporation. The service of health & wellness practices is done at the practitioner level, not the clinic level.

If you own a clinic and are working at that clinic as a practitioner, the liability for the business is with the corporation but your practice is still with you.

ADVANTAGES:

⁠Legal separation between you and you business
There can be multiple shareholders to split the profits with
Low corporate tax rates if you make less than $500,000 per year
Only taxed personally as you take money out of the corporation
Tax planning opportunities with deciding how to pay yourself

DISADVANTAGES:⁠

⁠Additional fees including the cost to incorporate and annual corporate tax return
You must keep the corporate transactions separate from your personal
- Additional bank accounts
- Accounting software
- Tracking both assets and income

Now that you understand the different types of businesses you can create you can make a more educated decision on what business type will be best for you.

Download our free decision tree using this link to determine which business type is best for you.

Be sure to consider your professional regulations and the potential risks and rewards of each type before making a decision. We always recommend speaking with a lawyer and accountant when making these decisions to make the best decision possible.

RESOURCES:

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