Professional corporation ownership rules in Prince Edward Island

In Prince Edward Island the rules for practising law through a company sit in Part 3.1 of the Legal Profession Act. The Act calls the company a law corporation, and the Law Society of Prince Edward Island issues it a permit. Who may own the shares, who may sit on the board and how voting rights may be delegated are settled by the Act, not by the company’s own articles. Anyone buying a practice carried on through a law corporation, or setting up a corporation to receive one, should start there. This guide reads the consolidation current to November 29, 2023, so confirm no amendment since. Other provinces run their own regimes.

A permit, and no listing on the roll

A corporation that intends to carry on the practice of a barrister, solicitor or attorney must apply for a permit in accordance with the regulations. The secretary-treasurer of the Law Society may issue it, and may refuse, place conditions on, suspend or revoke it. No corporation may carry on or hold itself out as carrying on that practice except as the Act provides. A law corporation is not entered on the roll as a barrister, solicitor or attorney, and everyone who practises on its behalf must be a practising member. The Law Society’s own page says lawyers form a law corporation by meeting the Act and Regulations, getting letters patent through the Director of Corporations and applying for a permit.

Voting shares

Section 36.2 states the ownership principles. All issued voting shares must be legally and beneficially owned by one or more practising members, or by a trust of which all the trustees and all the beneficiaries are practising members. The Act adds a holding-company route: voting shares may be owned by a corporation if all of its voting shares are owned by practising members or such a trust, its non-voting shares are owned by the persons the Act permits, and all of its officers and directors are practising members. A buyer’s holding company therefore has to be built to this specification before it can hold the shares.

Non-voting shares and who may direct the corporation

Non-voting shares, if any, may be owned by a member of the Law Society, a law corporation that is a voting shareholder, or a person who is a relative of or resides with a member who is a shareholder. A trust whose trustees and beneficiaries all fall in those groups also qualifies, and under clause 36.2(1)(e) so does a corporation whose shares are all beneficially owned by those persons or such a trust and whose officers and directors all fall in those groups. All officers and directors of a law corporation must be practising members. The Act then closes the obvious workarounds. No shareholder may enter into a trust agreement, proxy or similar arrangement giving voting rights to a person who is not a practising member, and a holding corporation may send only a practising member to represent it at a shareholders’ meeting. Subsection 36.2(3) also bars an officer or director who owns shares from vesting their authority or voting rights as officer or director in an outsider through a trust agreement, proxy or similar agreement, and an attempt to bypass that rule is invalid to the extent it vests such authority or rights in someone who is not a practising member.

Notice, liability and the permit renewal

Where there is any change in the shareholders, shareholdings, officers, directors, name or business name of a law corporation, the Legal Profession Act requires the corporation to give written notice to the secretary-treasurer within 15 days. Every voting shareholder, and every voting shareholder of a corporation that owns voting shares in the law corporation, is liable to every person for whom the corporation undertakes or provides professional services, in respect of those services, to the same extent and in the same manner as if the voting shareholders practised in partnership or as an individual. The Law Society’s page says a law corporation must renew its permit by June 15 each year. Its application form asks a practising and insured member to confirm the corporation’s certificate and articles of incorporation, and to list the officers and directors, each a practising and insured member.

• Map every voting share to a practising member, a qualifying trust or a qualifying holding corporation, using the Act’s wording.
• Check for any trust agreement, proxy or voting arrangement that could vest voting rights in someone who is not a practising member.
• Confirm that all officers and directors are practising members, and that each one is insured, as the permit form asks.
• Put the 15-day written notice to the secretary-treasurer under the Legal Profession Act into the closing checklist for any change in shareholders or directors.
• Ask the Law Society whether the permit, business name and renewal date carry over, or whether the buyer’s corporation must apply for its own.

The corporate rules are only part of a transfer. See buying a law practice in Canada for the surrounding steps.