Professional corporation ownership rules in Newfoundland and Labrador

A law practice in Newfoundland and Labrador cannot be passed on the way an ordinary company can. If it is carried on through a corporation, the corporation must be licensed under the Law Society Act, 1999, and the Act’s licensing conditions decide who may own it, direct it and vote its shares. A buyer who is not a lawyer cannot simply purchase the voting shares. A buyer who is a lawyer still has to check that the corporation will keep its licence after the closing. This guide sets out what the Act and the Law Society’s Part XI rules say about professional law corporations. Other provinces and territories run their own regimes, and none of this describes them.

A licence sits on top of incorporation

The Act defines a professional law corporation as a corporation that is licensed, and the licence is issued under section 63.4 of the Act. The executive director of the Law Society issues it when the corporation satisfies several conditions. The corporation must be incorporated under the province’s Corporations Act and be in good standing under that Act. Its name must be in accordance with the rules and contain the words “professional law corporation” or the abbreviation “PLC”. The Act also says a person shall not practise law under a name containing those words unless the corporation is incorporated or continued under the Corporations Act and holds a licence that has not been suspended or revoked.

Who may own the voting shares

The executive director must be satisfied that all the voting shares are legally and beneficially owned by, and registered in the name of, one or more members in good standing or professional law corporations holding a valid licence. Both ownership tests matter. The wording is legal and beneficial ownership, so a lawyer holding shares as a nominee for someone else should ask the Law Society whether that arrangement qualifies. The Act also limits how voting rights can be handed over. A voting shareholder may enter into a voting trust agreement, proxy or similar agreement only with a practising member in good standing or a licensed professional law corporation.

Non-voting shares, directors and officers

Non-voting shares are restricted too. The Act lists who may own them, and the list is narrower than the general public. For some holders it brings in the immediate relatives of voting shareholders, and it deals separately with a corporation that holds shares. Anyone planning a family or estate structure should read that paragraph of the Act in full rather than rely on a summary. Directors and officers face their own test: the executive director must be satisfied that all of them are practising members in good standing. A professional law corporation also may not carry on a business or activity other than the practice of law as its licence authorizes, and activities incidental to it, though section 63.2(5) still lets it invest its own funds in real property (other than for development), stocks, mutual funds, debt obligations, insurance, term deposits or similar investments.

What happens when a shareholder stops qualifying

The executive director may revoke a licence where a licensing condition no longer exists. The Act also sets a fixed grace period. Where a shareholder ceases to qualify as a shareholder of a professional law corporation, section 63.4(3) of the Law Society Act, 1999 gives the corporation 60 days from the date of cessation to meet the qualification again. After the 60 days, the Law Society Act, 1999 cancels the corporation’s licence automatically. For a sale this is the clock to watch, and section 63.4(3) contains no provision to extend it. Whether a transfer to a person who never qualified falls under that 60-day rule in the Law Society Act, 1999, or simply ends a licensing condition so the executive director may revoke the licence, is a question to put to the Law Society. The Act deals separately with a sole voting shareholder: disbarment revokes the corporation’s licence, and a suspension suspends it for the same period.

Liability and what the rules ask for afterwards

Despite the Corporations Act, a member who is a voting shareholder of a professional law corporation, or another person employed by it, is liable, while the corporation holds a licence or while it acts in contravention of section 76, to the same extent and in the same manner as if carrying on the practice of law as a partner in a partnership, or, if the member is the only voting shareholder and only employee, as an individual. Section 63.5(2) adds that a person’s liability in practising law is not affected by practising through a professional law corporation. The Law Society’s Part XI rules add filing duties. Under the Law Society’s rule 11.03(3), a corporation must deliver a certified statement of disclosure within 15 days of a change in the particulars it gave on its application. Rule 11.05 also requires it to deliver a certified statement of disclosure and the annual fee on or before January 15 each year. These are the Law Society’s own deadlines, so confirm the current forms with it.

• Ask the Law Society whether the buyer’s planned holding structure meets the Act’s voting-share test, before signing rather than after closing.
• Check who legally and beneficially owns every voting share today, and whether any voting trust, proxy or similar agreement exists.
• Confirm that every director and officer after closing will be a practising member in good standing.
• Calendar the 60-day period in the Law Society Act, 1999 and the 15-day disclosure deadline in the Law Society’s rule 11.03(3) against the closing date and any staged share transfers.
• Find out how the licence, the corporation’s name and its records will be handled if the sale is an asset sale into a different corporation. The Act says a corporation shall not engage in the practice of law unless it is licensed, so a buyer’s corporation would need a licence in its own right.

For the wider picture of buying a legal practice, see buying a law practice in Canada, which covers trust funds, client files and the other steps that sit outside the corporate rules.