Is a partner buyout different in a professional practice?

In an ordinary company, the owners can agree terms and sell to anyone their articles and agreements allow. In a regulated practice, a statute or a regulator may also decide who can hold shares in the practice company. That can narrow the list of people who can buy a departing partner out. This page is about that exit side, who may buy. For how a buy-in is funded, see financing a partner buy-in to a professional practice.

Ontario’s professional corporation rules

Under s.3.2(2) of Ontario’s Business Corporations Act, despite any other provision of the Act but subject to s.3.2(6), a professional corporation shall satisfy all of the listed conditions. One is that all of its issued and outstanding shares are legally and beneficially owned, directly or indirectly, by one or more members of the same profession. Section 3.2(5), also subject to s.3.2(6), makes a unanimous shareholder agreement in respect of a professional corporation void unless each shareholder is a member of the professional corporation, and s.3.2(6) lets regulations exempt classes of health profession corporations. So, absent such an exemption, a buyer who is not a member of the same profession cannot hold the shares.

Other provinces and professions differ

The College of Dental Surgeons of Alberta states that Bill 53 removed restrictions on share ownership for Alberta dentists who use a professional corporation and allows family members to own non-voting shares. Quebec’s regulation on practising dentistry within a company requires that the voting rights attached to the shares be held by at least one member of the Order, or by an entity whose voting rights are held wholly by at least one member. The same transaction can therefore be allowed in one province or profession and refused in another.

What to settle before agreeing terms

Confirm with your regulator that the incoming owner qualifies before you agree a price. Check what your shareholder agreement says about transfers and valuation. If the corporation will buy the shares itself, rather than a partner buying them, OBCA s.30(2) bars it from paying to purchase its own shares if there are reasonable grounds for believing it is or, after the payment, would be unable to pay its liabilities as they become due, or that after the payment the realizable value of its assets would be less than the aggregate of its liabilities and stated capital. That is subject to the exceptions in ss.31 and 32, which carry their own tests; s.32 covers redeemable shares. See also using business cash for a partner buyout.