One of the first questions to ask when starting a company is what type of entity it should be. Tax implications, potential for investment, and management structure are just a few of the many factors to consider. For businesses in California that provide certain services requiring a professional license or certification, however, only one entity type is permitted: a California professional corporation, or PC.
The types of professional services requiring a license or certification that necessitate a PC are wide ranging, including doctors, dentists, pharmacists, veterinarians, architects, physical therapists, nurses, and optometrists. (For a full list see Cal. Corporations Code 13401.) While most of the formation requirements for a California PC are the same as a regular California corporation, the following distinctions apply:
Corporate Purpose in the Articles of Incorporation
The “corporate purpose” for a general stock corporation in California is typically as broad as “to engage in any lawful act or activity.” In contrast, a Professional Corporation must declare in its Articles of Incorporation that the purpose of the corporation is to engage in its specific profession.
Naming Requirements
California statute dictates naming requirements for Professional Corporations, and most PCs are required to include the type of professional services they offer in their names. For example, veterinary PCs must include the words “veterinary corporation” or some other wording denoting corporate existence in their names.
Other professions have additional naming requirements, such as chiropractic PCs. The name of a chiropractic PC must include the word “chiropractic,” the name or last name of one or more of the present, prospective, or former shareholders, and the word “corporation” or some other word denoting corporate existence.
Each profession’s naming requirements are different and so the applicable statues should be reviewed before submitting the Articles of Incorporation, as they will be rejected if the name does not comply.
Licensed Directors, Officers, and Shareholders
All of the directors, officers, and shareholders of a Professional Corporation must be licensed to practice the professional services of the PC, with only two exceptions. First, if there is only one shareholder in certain PCs, the PC may be allowed to fill specific officer positions with non-licensed people.
Second, in some cases, people holding a license that is different from that designated by the Professional Corporation may serve as shareholders, officers, or directors of the PC. For example, a licensed clinical social worker may be part of the governance of a medical corporation, even though the social worker does not have a medical license, as long as people without medical licenses do not exceed the number of people with medical licenses in the PC and do not own more than 49% of the company. See Cal. Corp. Code 13401.5.
Potential Registration with a Governing Board
One other requirement that applies to some PCs, but not all, is that the governing board of the particular license may require the PC to separately register with the board. For example, the California Board of Chiropractic Examiners requires all Chiropractic Professional Corporations to submit a Certificate of Registration after the PC has been formed.
The considerations listed above apply to nearly all California Professional Corporations, but the exact details and applicability of each depends on the type of professional services offered. Therefore, it is very important to review the applicable laws and guidelines and consult a lawyer before starting a Professional Corporation.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. 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.