When it comes to business arrangements, the options available for paralegals can seem either too numerous, or too limiting.
Paralegals can provide services through a sole proprietorship, a partnership or a professional corporation. Each structure poses its own benefits and challenges. There is no “one, perfect business type.” Much depends on the resources, personality and style of the paralegal.
Here are some suggestions to help paralegals decide which best suits their situation. You may want to consider consulting a professional about the business structure options.
Going it Alone
Sole-proprietorship is the simplest business structure. It allows the paralegal to work alone or with an employee. The sole proprietor files one set of income tax returns.
Sole proprietors may want to consider the costs and benefits of:
- Business Registration – To acquire an Operating Name, Business Number, HST number and open payroll accounts
- Business Licence – A must, to have bank accounts in the Business Name
- Income Tax Forms: Complete Form T2125 – Statement of Business and Professional Activities
- Bookkeeping is relatively easy; don’t forget the allowed deductions for home office, car and capital cost depreciation, etc.
The Taxing Nature of Success
If a paralegal starts out as a sole proprietor and expects to earn enough to be pushed into the 30-percent tax bracket, it may be time to consider incorporating as a Professional Corporation (PC). Both the Business Corporations Act (Ontario) and the Law Society Act permit paralegals to provide legal services through a Professional Corporation.
This business structure will lower the taxes on income. The PC business owner must file both a personal income tax return and the corporate tax return. This will increase accounting fees and other expenses.
It is a good idea to check with an accountant to determine whether it is time to restructure as a PC, or to form a permitted partnership.
Limiting Risk, Expanding Structure
The Partnerships Act and the Law Society Act come into play for LLPs. Among the conditions that must be met: the partnership must maintain professional liability insurance coverage for each partner in accordance with By-law 6; it must register its name under the Business Names Act; and that name must include the words: “limited liability partnership” or an approved abbreviation, as the last words or letters of the firm name.
For Professional Corporations, all shareholders must be licensed paralegals or lawyers. Legal services cannot be provided through a PC until the Law Society issues a Certificate of Authorization.