In California, certain professions are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation.
Professions that are required to be professional corporations include many of those that must have a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists, psychiatrists and psychologists.
What Is Different About Professional Corporations?
Professional corporations have more restrictions than traditional corporations. For example, with a few limited exceptions, officers, directors and shareholders of a professional corporation must be licensed to conduct the professional activity.
Professional corporations are also subject to specific rules in the California Business and Professions Code. For example, only licensed persons can be shareholders of a professional corporation.
In addition, professional corporations are subject to the regulations of the applicable governmental agency overseeing the profession in which the professional corporation is engaged. For example, some agencies have restrictions on what you can name a professional corporation and require specific language to be included in the professional corporation’s bylaws regarding who can own shares and be officers of the professional corporation.
Why Form A Professional Corporation?
While professional corporations do not provide liability protection for malpractice, you could have limited liability protection for claims not based on malpractice, such as a slip and fall accidents.
In addition, by forming a professional corporation you may be able to deduct payments for benefit plans, such as disability or health plans or group term insurance.
Finally, you should speak with your CPA or other tax professional about whether there is the potential to have tax savings by forming a professional corporation and then electing to have it taxed as an S corporation.
Please contact us at (415) 633-6841 or firstname.lastname@example.org to discuss whether your company is required to be a professional corporation and, if so, the steps necessary to get it set up right.
Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.