Professional corporation ownership rules in British Columbia

Buying a professional practice raises questions that an ordinary share purchase does not. In British Columbia, the two regulators covered here each publish their own rules on who must be licensed, who may apply for a corporate permit and what a firm must do when it closes. This guide covers what two of them publish: Chartered Professional Accountants of British Columbia (CPABC) and the Law Society of British Columbia. Nothing here describes any other province; check that province’s regulator. Read it as a map of the questions to put to the regulator before a share purchase or asset purchase is priced, not as advice on any particular structure.

Each profession answers to its own regulator

CPABC licenses members and firms engaged in public practice in the province. It states that the Chartered Professional Accountants Act and its Code of Professional Conduct, Bylaws and Bylaw Regulations permit flexibility in corporate organization. The Law Society of British Columbia publishes its own Rules and runs its own law firm registration process. A buyer therefore cannot assume that a rule learned on one side applies to the other. If the target is an accounting practice, the starting point is CPABC. If it is a law practice, it is the Law Society. The general buying considerations for each are in buying an accounting practice in Canada and buying a law practice in Canada.

When CPABC requires an incorporation permit

CPABC says an incorporation permit is generally required in several situations. A corporation that is itself a public practice firm needs one. So does a corporation that holds, or will hold, a direct partnership interest in an LLP that provides public practice services. The same applies to a direct partnership interest in any partnership that provides public practice services or represents itself as a CPA firm in BC. A professional accounting corporation that provides public practice services only to another registered firm also needs a permit. For a buyer, the practical question is which of these describes the structure on the table, and whether the seller’s corporation already holds the permit.

A permit is not a licence to practise

CPABC states that an incorporation permit is not a licence to practise public accounting. A practice licence, or an extra-provincial licence, must be applied for separately and must be obtained before public practice activities begin through the corporation. This matters in a transfer. On CPABC’s wording, holding a permit does not by itself amount to a licence to practise public accounting, so a buyer should ask CPABC which licences each person carrying on public practice through the corporation must hold.

Who must be licensed, and who can apply for a permit

CPABC says that a partner, shareholder or proprietor of a firm engaged in public practice in BC, including a sole practitioner, must hold a licence in the appropriate category under Bylaw 700 (2). It also says a member who is an employee with overall engagement responsibility for work within the definition of public practice must be licensed. To be eligible to apply for a professional accounting corporation permit, the applicant must be a member in good standing of CPABC with a direct or indirect proprietary interest in shares of the corporation. Whether a buyer meets that test is a question for CPABC.

Holding companies and the partner letter

CPABC says members may use multi-tiered corporations, meaning holding companies, to hold their shares in an incorporated public practice firm or in a corporation that holds the member’s partnership interest. It adds that these holding companies are subject to certain applicable requirements under section 39 of the Chartered Professional Accountants Act. When a member applies for a practice licence as a partner, CPABC requires a letter from the firm confirming the effective date and how the interest will be held, personally or through a professional accounting corporation. The letter should also confirm that the member and the corporation, if any, are covered by the firm’s professional liability insurance.

What the Law Society publishes about closing a firm

The Law Society’s site lists a law corporation permit among its topics, but the pages checked for this guide do not set out the conditions for holding shares in a law corporation. Confirm those with the Law Society directly. What the Society does publish is the closing sequence for a sole practitioner. The lawyer must return remaining trust funds to clients or remit them to the Society as unclaimed trust funds, close the trust accounts, file a trust report under Rules 3-79 and 3-84, and report the disposition of client files and records under Rule 3-87. A request to terminate the firm then goes through the Member Portal. The Society says all law firms must file a final trust report under Rule 3-79, whether or not they hold a trust account, and that the steps also apply to the only BC lawyer practising at an extraprovincial law firm registered with the Law Society who is leaving it, even if the firm will continue to operate.

Questions to settle before a price is agreed

• Which regulator governs the target, and has it confirmed in writing how the proposed structure will be treated?
• For an accounting practice, does the seller’s corporation hold an incorporation permit, and does the buyer or the buyer’s corporation qualify to apply for its own?
• Will each person who will carry on public practice hold the practice licence CPABC requires, and by what date?
• Does the firm’s professional liability insurance cover the incoming partner and any corporation holding that partner’s interest?
• For a law practice, what will happen to trust funds, trust reporting and client files if the seller’s firm closes rather than continues?