Entrepreneurship & Small Business

CPA Professional Corporation share structure

  • Last Updated:
  • Oct 10th, 2018 11:22 am
[OP]
Newbie
Oct 6, 2018
4 posts

CPA Professional Corporation share structure

Can any CPAs with a single-owner professional corporation advise on best practice, if any, for share structure? Presumably all such CPAs (single voting shareholders owning the CCPC) have one Class A Common Share with rights to vote, receive dividends, and receive proceeds on dissolution. Did you create other share classes, and if so how many, and why? Are they Class A/B/C Special, are they Preference Shares, or did you create a second class of Common Shares? I have seen other CCPC share structures (health professionals and non-restricted CCPC). However I would specifically like to hear from any accountants on the share structure they chose, and why. Thank you.
Last edited by skyscrape on Oct 8th, 2018 2:20 pm, edited 1 time in total.
10 replies
[OP]
Newbie
Oct 6, 2018
4 posts
Yes, seriously. Is there something wrong with the question? The OMA has a full piece on recommended share structure for its members. I cannot find anything for any of the provincial CPA organizations. They have sample articles, with the share structure blank. Now the OMA is different in that shareholders do not necessarily have to belong to the profession, whereas for CPA PCs they do. Nevertheless, I simply would like to know if there is a recommended share structure.
Last edited by skyscrape on Oct 8th, 2018 2:20 pm, edited 1 time in total.
Member
Nov 12, 2014
389 posts
196 upvotes
Kingston, ON
Just do any many classes as you think you'll need and some freeze share classes and ensure they are done properly so CRA can't argue they are the same class anyway....pretty easy stuff for a CPA to be honest....I would never do that on my own; pay the legal fees....it's smart to pay to get it done correctly.
[OP]
Newbie
Oct 6, 2018
4 posts
Appreciate your insight. "Pretty easy stuff for a CPA to be honest..." - are you a CPA? Do you think that 'optimum share structure' is covered in the CPA syllabus? It isn't. People join firms and do specific things, and learn from experience and peers. Then they become de facto experts or specialists in particular areas of accounting, whether it be tax, audit, management accounting, structured finance, whatever. Your statement is as valid as a statement suggesting a GP could perform a kidney surgery because both the GP and the Urologic surgeon are physicians. Furthermore, you appear to have conflated "correctly" with "best practice". Anyone can file articles "correctly" - all one needs for a single-shareholder CCPC is a single class of shares with specific rights. A single share is issued to the single director and that is 100% 'correct'. What I am after is a recognized best practice for a specific profession, and that brings me here. I would appreciate some insights from CPAs. If I don't get that, I won't lose any sleep over it. And maybe I will go to a lawyer. I'm not avoiding that path specifically, I am simply trying to figure it out for myself.
Member
Nov 12, 2014
389 posts
196 upvotes
Kingston, ON
I guess you need to go visit an accountant who knows this stuff then, or a lawyer....this stuff is very specific to your situation...I don't believe you can have spouses as shareholders in a PC....but depends on your province...you want different shares if you ever intend to have different shareholders....which you likely can't do that anyway unless you have a partner or colleague as a shareholder...your corporate lawyer would know those rules and know the best way to set it up for future possibilities, and know the proper share attributes to use....or you can google it.
Newbie
Jan 18, 2017
81 posts
51 upvotes
TLDR: CPA Canada sucks in terms of small practitioner support.

You're right in that CPA Canada is absolutely useless in terms of support for its "smaller" members. They have a long way to come in terms of offering what other professional bodies like the College of Physicians or the various Law Societies provide. So don't waste your time trying to find that info from our esteemed Institute's literature and getting frustrated in your search, because currently there isn't anything out there as far as I know.

Secondly, it's been a few years since I have done this so my recollection is fuzzy, but I think the short version is that the PC's voting/controlling shares can only be held by someone with a CA designation. Spouses can hold non-voting shares/pref shares etc. So any basic incorporation Schedule A that has voting/non-voting/preferred will likely be fine, as long as the voting shares are exclusively held by a designated individual.

One catch though is with CRA and their new TOSI rules - It's a lot trickier now in terms of tax planning with a spouse holding (non-voting) shares, and with the new rules it isn't as attractive for a PC to have dividend-sprinkling shares any more. Having said that, there are some possible ways around it, with the short version being have you/your spouse incorporate a separate holding company with each of you holding 50/50 (or whatever you want to do) and go from there.
skyscrape wrote:
Oct 8th, 2018 12:32 pm
Yes, seriously. Is there something wrong with the question? The OMA has a full piece on recommended share structure for its members. I cannot find anything for any of the provincial CPA organizations. They have sample articles, with the share structure blank. Now the OMA is different in that shareholders do not necessarily have to belong to the profession, whereas for CPA PCs they do. Nevertheless, I simply would like to know if there is a recommended share structure.
______
Canadian & US tax guy
Member
Nov 12, 2014
389 posts
196 upvotes
Kingston, ON
crossborderguy wrote:
Oct 9th, 2018 2:41 pm
TLDR: CPA Canada sucks in terms of small practitioner support.

You're right in that CPA Canada is absolutely useless in terms of support for its "smaller" members. They have a long way to come in terms of offering what other professional bodies like the College of Physicians or the various Law Societies provide. So don't waste your time trying to find that info from our esteemed Institute's literature and getting frustrated in your search, because currently there isn't anything out there as far as I know.

Secondly, it's been a few years since I have done this so my recollection is fuzzy, but I think the short version is that the PC's voting/controlling shares can only be held by someone with a CA designation. Spouses can hold non-voting shares/pref shares etc. So any basic incorporation Schedule A that has voting/non-voting/preferred will likely be fine, as long as the voting shares are exclusively held by a designated individual.

One catch though is with CRA and their new TOSI rules - It's a lot trickier now in terms of tax planning with a spouse holding (non-voting) shares, and with the new rules it isn't as attractive for a PC to have dividend-sprinkling shares any more. Having said that, there are some possible ways around it, with the short version being have you/your spouse incorporate a separate holding company with each of you holding 50/50 (or whatever you want to do) and go from there.
Don't think there are ways around TOSI unless spouse works in the business more than 20 hours (or owns 10% of votes and value, which cannot be done for a PC...and PCs are not allowed the excluded shares rules anyways....it's not like you can just pay dividends to a separate holdco and voila you're out of the TOSI rules, unless I am missing something?
[OP]
Newbie
Oct 6, 2018
4 posts
Thank you, your reply is helpful, because it reaffirms what I have concluded on my own. FYI I found one lawyer website which states that non-members CAN be shareholders in a CPA PC. However, the CPAs own website (not sure if the link is permitted: https://www.cpaontario.ca/cpa-members/p ... rporations) states that "A "professional corporation" means a corporation incorporated under the Ontario Business Corporations Act, which has as its only shareholder(s) a member or members.". To that end, I researched the OBCA and it seems to me that only Medicine Professional Corporations and Dentistry Professional Corporations can have non-member shareholders (i.e. specific family), because of a 2005 (?) amendment to the Regulated Health Professionals Act. Other professions have the restriction that shareholders have to be members of the profession, or of another PC.

Furthermore the sample articles (CPA Ontario) have in section 8 of Form 1 "All of the issued and outstanding shares of the corporation shall be legally and beneficially owned, directly or indirectly by one or more members of the Chartered Professional Accountants of Ontario, other CPA professional corporations, or both.". It does not restrict that statement to 'voting shares'.

On top of that, I spoke with a designated professional who deals with Professional Corporations as a regular part of his job and did he have a recommended share structure for a CPA PC? No. Which reaffirms my initial theory that nobody really knows, people just ask people as I am doing here and learn from experience. I have read, and re-read, and re-read again two full sets of articles and there is every reason to adopt the recommended share structure the OMA sends out to physicians. Why not? It provides flexibility for the future. There is nothing to say a CPA would not hire another CPA in the future and offer a non-voting equity stake in the company, or to say that a CPA's kids won't one day get an accounting designation and then take over the company.

As for TOSI: those new rules are all wrong on every level and they infuriate me, and its made worse by having the trust fund twins sitting on their perches telling the serfs to pay up. However it doesn't matter for this, because I do not believe a non-member can be a shareholder anyway. My purpose here was to determine if there is a CPA-specific best practice for share structure, and I have concluded that there is no such thing. As to the holdco idea, will probably fail because of attribution. Thanks again.
Newbie
Jan 18, 2017
81 posts
51 upvotes
Like I said, "short version". Step 1 is "Incorporate holdco", and after that is where it gets complicated. (And even then my review seems to show it's not a guaranteed thing, but it gives an option for clients who want to go that way.) But certainly I wasn't implying my little blurb was a how-to, and my bad if it came across that way.
QN5252 wrote:
Oct 9th, 2018 7:14 pm
Don't think there are ways around TOSI unless spouse works in the business more than 20 hours (or owns 10% of votes and value, which cannot be done for a PC...and PCs are not allowed the excluded shares rules anyways....it's not like you can just pay dividends to a separate holdco and voila you're out of the TOSI rules, unless I am missing something?
Last edited by crossborderguy on Oct 10th, 2018 11:47 am, edited 2 times in total.
______
Canadian & US tax guy
Newbie
Jan 18, 2017
81 posts
51 upvotes
Well I can't speak for Ontario, but two minutes of googling got me this https://www.cpaalberta.ca/-/media/Files ... A2B8F00609 It shows voting members must be CPA's, and also makes reference to non-voting shareholders. Maybe Ontario has a similar thing floating around.

The elephant in the room is simply call CPA and ask them directly. They have a whole department that deals with licensing and all of that. Just ask them what the current situation is with non-voting shareholders in a PC and post what you come up with.

As for "CPA-Specific Best Practices", it's what @QN5252 originally stated, and the same thing we tell clients: Get the most expansive Schedule A share structure you can find. It allows for the most flexibility, and even if you never get around to using 99% of it, you still have options if you need them (As opposed to paying lawyers to fix things after the fact $$$)
skyscrape wrote:
Oct 9th, 2018 7:59 pm
Thank you, your reply is helpful, because it reaffirms what I have concluded on my own. FYI I found one lawyer website which states that non-members CAN be shareholders in a CPA PC. However, the CPAs own website (not sure if the link is permitted: https://www.cpaontario.ca/cpa-members/p ... rporations) states that "A "professional corporation" means a corporation incorporated under the Ontario Business Corporations Act, which has as its only shareholder(s) a member or members.". To that end, I researched the OBCA and it seems to me that only Medicine Professional Corporations and Dentistry Professional Corporations can have non-member shareholders (i.e. specific family), because of a 2005 (?) amendment to the Regulated Health Professionals Act. Other professions have the restriction that shareholders have to be members of the profession, or of another PC.

Furthermore the sample articles (CPA Ontario) have in section 8 of Form 1 "All of the issued and outstanding shares of the corporation shall be legally and beneficially owned, directly or indirectly by one or more members of the Chartered Professional Accountants of Ontario, other CPA professional corporations, or both.". It does not restrict that statement to 'voting shares'.

On top of that, I spoke with a designated professional who deals with Professional Corporations as a regular part of his job and did he have a recommended share structure for a CPA PC? No. Which reaffirms my initial theory that nobody really knows, people just ask people as I am doing here and learn from experience. I have read, and re-read, and re-read again two full sets of articles and there is every reason to adopt the recommended share structure the OMA sends out to physicians. Why not? It provides flexibility for the future. There is nothing to say a CPA would not hire another CPA in the future and offer a non-voting equity stake in the company, or to say that a CPA's kids won't one day get an accounting designation and then take over the company.

As for TOSI: those new rules are all wrong on every level and they infuriate me, and its made worse by having the trust fund twins sitting on their perches telling the serfs to pay up. However it doesn't matter for this, because I do not believe a non-member can be a shareholder anyway. My purpose here was to determine if there is a CPA-specific best practice for share structure, and I have concluded that there is no such thing. As to the holdco idea, will probably fail because of attribution. Thanks again.
______
Canadian & US tax guy

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)