California Professional Corporation: A Step-by-Step Guide

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If you are a professional in California, you will need to form a California Professional Corporation.

You may think just forming a corporation is enough..

but there’s more to it than that when you work in professions such as law, dentistry, psychology, health, and accounting.

That probably leaves you wondering what the California professional corporation requirements are and what you need to do in order to be compliant.

The good news is that I’ve compiled all of the information you’ll need to get started with your California professional corporation today...

If you still have questions or want to begin the process, contact me at sam@mollaeilaw.com today and we’ll get started.

Let's get started...

 

Professional Corporation California

If you have to have a state license for your profession, you most likely have to form a professional corporation in California.

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Some of the professions that need to form California professional corporation include:

  • Lawyers
  • Therapists
  • Doctors
  • Dentists
  • Engineers
  • Veterinarians
  • Optometrists
  • Psychologists and Psychiatrists

If you’re unsure if you need to from a professional corporation California requires, contact me at sam@mollaeilaw.com and I'll be happy to let you know whether you will need a Professional Corporation.

 

Professional Corporation Definition

Professional corporation means a legal business entity (corporation) that’s formed to provide services in a single industry that requires a license to practice, such as physicians, attorneys, and psychologists.

A professional corporation may be formed by one or more people who are licensed in a certain profession.

 

What are the California Professional Corporation Name Requirements?

The California Professional Corporation name requirements are the same as any rules that governs that profession and must meet any applicable licensing agency requirements.

The name has to be distinguishable from any other business entity name that the California Secretary of State has on file.

If you’d like to check if the name you want for your business is available, you may mail the Secretary of State a Name Availability Inquiry Letter.

You can also reserve a name for up to 60 days using a reservation request form.

 

California Professional Corporation Shareholder Requirements

The shareholder requirements for a California Professional Corporation are similar to the requirements of any other corporations.

The difference is that the shareholders must meet and comply with any rules in the California Business and Professional Code. In most cases, the shareholder must be licensed in the profession the corporation is in.

It should be noted that just because shareholders are usually required to be licensed in the profession, other members can be officers, directors, or employees to name a few options.

There’s also a possibility that a person can be a shareholder without being licensed as long as the number of licensed professionals make up the majority of the shareholders.

The rules governing who may be a shareholder and who may not doesn’t match across industries. That is, one profession may allow non-licensed shareholders while another may not.

The best thing to do is consult with a business lawyer who is familiar with California Corporations Code Section 13401.5.

I can tell you the shareholder requirements for your profession and help you understand them.

 

California Professional Corporation Requirements

The California Professional Corporation requirements are mainly that a Professional Limited Liability Company isn’t allowed in California and any professional corporation can only operate in a single industry.

This basically means that a lawyer and a doctor can’t form a professional corporation to practice both law and medicine.

Additionally, the professional corporation is required to meet any limitations or requirements that apply to their profession.

Furthermore, a professional corporation can’t be formed by any individual. To form a professional corporation in California, you must be licensed in the profession.

Some of the professional that are required to form a professional corporation include:

  • Accountants
  • Acupuncturists
  • Architects
  • Chiropractors
  • Dentists
  • Lawyers
  • Therapists
  • Nurses
  • Optometrists
  • Pharmacists
  • Physical therapists
  • Podiatrists
  • Psychologists
  • Court reporters
  • Social workers
  • Naturopaths

If you’re unsure if you need to form a professional corporation in California or have any questions about the requirements, reach out to me at sam@mollaeilaw.com so I can provide the information you need.

 

Dentistry Professional Corporation

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If you are a dentist and want to form your own business, you need to form a dentistry professional corporation in California.

Of course, there are some things you should know before you make this decision.

First of all, you can’t form a dentistry practice in California unless you form a professional dentistry corporation. That means that partnerships, LLCs, and sole proprietorships aren’t allowed.

With a dentistry professional corporation, as long as the majority of the shareholders are licensed dentists, other professions can be shareholders. The California Corporations Code does place restrictions on what professions can be a shareholder in a dentistry corporation:

  • Dental assistants
  • Licensed physicians
  • Licensed surgeons
  • Dental hygienists

Individuals who aren’t in one of the above professions but still want to participate in the corporation, may own shares as long as they make up the minority.

Additionally, these individuals can be officers, directors, employees, or other roles as long as they’re not shareholders.

 

Legal Professional Corporation

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As a lawyer in California, if you want to start your own practice, you must form a Legal Professional Corporation.

Just as with dentistry, lawyers aren’t allowed to form a business through an LLC or regular Corporation.

Lawyers will need to form a Legal Professional Corporation.

This isn’t necessarily a bad thing, however, because there are many advantages of forming a professional corporation.

A few of these advantages include:

  • Limited liability that protects you from lawsuits and debt
  • Obtaining business credit without having to personally guarantee the credit
  • Reducing self-employment taxes
  • Providing certain benefits such as retirement plans and medical care

If you want to be a shareholder in a legal professional corporation in California, you must be licensed to practice law.

 

Can a Law Firm Be a Corporation?

Yes, a law firm can be a corporation. However, In California, the law firm must form a professional corporation to practice law.

This means that you can’t practice law in California through your own business as an LLC or regular Corporation.

 

California Professional Corporation Psychologist

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If you are a psychologist in California and you are looking to start your own practice, you must form a Professional Corporation in California

Just as with lawyers or dentists, psychologists aren't allowed to form a business as an LLC or regular Corporation.

Psychologists in California will need to form a California Professional Corporation.

 

California Professional Corporation Architects

If you are an architect in California, then you can't form an LLC or Corporation -- you will need to form a Professional Corporation.

Architects in California who are looking to start their business will need to form a California Professional Corporation.

 

Can a Professional Corporation Be an S Corp?

Yes, a professional corporation can be an S Corporation if it elects to be taxed as an S Corp by filing Form 2553.

You should have a tax professional or a business lawyer prepare your Form 2553.

Unless you make this election by filing the proper paperwork, your professional corporation will be taxed as a C Corp by default.

Some professional corporations choose to be taxed as S Corp because it has certain tax advantages over a C Corp.

 

Advantages of S-Corporation

  • Being taxed as a pass-through entity like an LLC
  • The ability to pass losses from the business to offset your personal income tax liability
  • Avoid double taxation

Keep in mind that being taxed as an S Corp may not be right for every professional corporation. It’s important to know which is better for your business – C Corp or S Corp.

There are some disadvantages that you should keep in mind.

 

Disadvantages of S Corporation Tax-Election

  • Limited to only one class of stock
  • Restrictions on who can be a shareholder

If you’re unsure about whether your professional corporation should make the S Corp election, the best thing you can do is to contact me at sam@mollaeilaw.com so I can walk you through the advantages and disadvantages as they apply to your specific situation.

 

How to Set up a Professional Corporation

To set up a professional corporation, you should hire a business lawyer to file your Articles of Incorporation with the Secretary of State.

Keep in mind that there are filing fees and they may vary based on your state.

To file the Articles of Incorporation, you’ll need to know the name of your business and choose a registered agent.

Next, you’ll need to register with the agency that governs your profession.

You’ll also want to work with your business lawyer to form your corporate bylaws. Note that while you do not have to file these with the state, you want to have these in place to handle any future issues and specify how the business shall run.

Next, your incorporator should prepare the Incorporator’s Statement form that specifies the corporation’s directors. The incorporator usually chooses these individuals.

Once you’ve chosen your directors, you need to have a meeting with the board of directors to adopt the bylaws, choose officers, authorize stock issuance, and other important new business tasks. When you have this meeting, be sure to record it in the corporate minutes.

Now it’s time to issue stock.

In California, your professional corporation also must file a Statement of Information within 90 days of filing the Articles of Incorporation as well as annually.

You’ll need to pay a minimum of $800 as an annual state tax to the California Franchise Tax Board. Additionally, any professional fees that are required by your industry should be paid as well.

Finally, you’ll want to obtain an EIN and any necessary business licenses and permits.

As you can see, the steps can get quite complicated if you aren’t familiar with business law at all. This isn’t one area where you want to save money and do it yourself because mistakes are easily made that could jeopardize your company’s future.

 

Conclusion

Sam Mollaei, Esq., Business Lawyer

Sam Mollaei, Esq., Business Lawyer

To sum it up, if you are in certain professions that require a license to practice in California and you want to start your own business, you’ll need to form a California professional corporation.

One of the best things you can do for the success of your business is to get familiar with the California professional corporation requirements and work with a business lawyer who can help you along the way.

I hope that this information was eye-opening and answered many of your questions.

► If you are ready to form your Professional Corporation, email me at sam@mollaeilaw.com today.