Professional corporation ownership rules in the Northwest Territories

The Northwest Territories regulates incorporated professional practices through one general statute, the Professional Corporations Act, rather than a rule written for each profession alone. The Act applies to a profession once the regulations designate it. The Professional Corporations Regulations designate barristers and solicitors and name the Law Society of the Northwest Territories as the governing body, under the Legal Profession Act. For anyone buying into or taking over a law practice carried on through a corporation, the Act answers who may own the shares, who must sit on the board and what can end the permit. Other jurisdictions have different rules.

A designated profession and its governing body

One or more members of a designated profession may incorporate a corporation under the Northwest Territories Business Corporations Act to carry on, in the corporation’s name, the professional services that members of the profession may lawfully perform. Under section 8 of the Business Corporations Act, the Registrar issues a certificate of incorporation on receipt of the articles, the required documents and the prescribed fees. Incorporation alone is not enough. A professional corporation that holds a valid permit may carry on the business, subject to the Act, the regulations and the bylaws of the designated profession, and it may provide those services only through members of the profession.

The conditions for carrying on practice

Section 4 of the Act sets out the conditions. No person may carry on, purport to carry on or advertise the business of providing professional services through or in the name of a professional corporation unless every condition is met. The corporation must be registered and hold a valid permit. All the issued voting shares must be legally and beneficially owned by one or more members of the designated profession, subject to the exceptions in the section. All the directors must be members. All persons who carry on the professional services in the corporation’s name must be members too. Section 15 makes contravening section 4(1) or section 5 an offence punishable on summary conviction.

Non-voting shares and shares held in a transition

Non-voting shares have their own list of permitted owners. It includes members of the designated profession and the spouses, children, grandchildren or parents of members who own voting shares. It also includes a corporation, incorporated or registered as an extra-territorial corporation under the Business Corporations Act, all of whose shares are owned by members or by those spouses, children, grandchildren or parents, and a trust whose beneficiaries are all in those groups or are such a corporation. Shares may also be vested in an executor or administrator of a shareholder’s estate, or in a trustee in bankruptcy, but only for the limited purpose of letting that person carry out the duties of the estate or the bankruptcy.

Pledges, voting trusts and the permit

Section 5 is aimed at control. No owner of voting shares may pledge them, or enter into a voting trust agreement, proxy or any other agreement that gives a person who is not a member of the designated profession the authority to exercise the voting rights. The governing body may register a corporation and issue a permit once the corporation applies in the form the governing body sets, pays its fees and satisfies it of the requirements in paragraph 6(1)(c): the corporation is incorporated or registered as an extra-territorial corporation under the Business Corporations Act and has filed the annual returns that Act requires, meets the requirements of the Act and of the profession’s bylaws, and has articles that do not prevent it from carrying on the professional business. The permit may carry terms and conditions the governing body considers appropriate, and the governing body may renew it on application if satisfied that the corporation continues to meet those requirements. The governing body keeps a corporate register that anyone may inspect without fee during regular office hours.

Revocation, liability and bylaws

The governing body may revoke a permit, and section 8(2) lists circumstances in which it must, including where only one member carries on the business in the corporation’s name and the member’s licence is revoked. A corporation may appeal to the Supreme Court where its application for registration, a permit or a renewal is rejected, its permit is issued subject to terms and conditions, or its permit is revoked. On member liability, section 11 says a member’s liability to a person who receives services from the member is not affected by the fact that services were provided as an employee of, or on behalf of, a professional corporation. Where a complaint, inspection, investigation or inquiry concerns the conduct of a member through whom the corporation was providing professional services when the conduct occurred, the corporation and the owners of its voting shares are jointly and severally liable for the fines and costs the member is ordered to pay. Section 16 lets bylaws or rules deal with the disposition of shares held by a shareholder who ceases to be a member, or whose licence is suspended or revoked.

• Ask the Law Society for its current permit application, fee schedule and any bylaws or rules on share disposition, since the Act leaves those to the governing body.
• Confirm the corporation’s register entry and the current terms and conditions on its permit.
• Check every pledge, voting trust, proxy or shareholder agreement against section 5.
• List each current non-voting shareholder and test them against the Act’s permitted categories.
• Plan for the corporation’s permit if the only member carrying on practice dies, becomes incapacitated or has a licence revoked, since the Act then requires the governing body to revoke the permit.

For the steps outside the corporate rules, such as client files and trust money, see buying a law practice in Canada.