If you’re a Certified Public Accountant (CPA) in California, you SHOULD form an Accounting Professional Corporation in California taxed as an S-Corporation.
If done incorrectly, your Accounting Professional Corporation in California can be rejected by the Secretary of State, leaving you vulnerable to potential lawsuits and fines from various government agencies, and even the California Board of Accountancy.
As a Business Lawyer for Professionals, I’ve assisted hundreds of professionals just like you start their Professional Corporation and I can definitely help you start yours.
How To Form An Accounting Professional Corporation in California
Here are the 9 steps you must take to form the an Accounting Professional Corporation in California
- File the Professional Articles of Incorporation of a Professional Corporation with the Secretary of State to form the Professional Corporation. You must also state within its Articles of Incorporation that its purpose is “accounting”
- Create custom Accountancy Corporation bylaws
- Apply for an EIN
- File the Statement of Information with the Secretary of State
- File Form 2553 for S-Corporation Tax Election for the Professional Accountancy Corporation
- Pay California Corporate Taxes and Fees to the California Franchise Tax
- Register with the EDD if you will be hiring employees
- Apply for local business registration and licenses
- Do all the steps above yourself or hire a Business Lawyer to do everything for you.
What Is A Professional Accountancy Corporation?
A Professional Accountancy Corporation is a professional corporation which is registered with the California Board of Accountancy (CBA), to provide accounting services.
An accountancy corporation wishing to practice accountancy in California is required to be approved for license by the California Board of Accountancy (CBA) before practicing or holding out to the public as an accountancy corporation.
California Board of Accountancy License Renewal
An accountancy professional corporation must renew its license every 2 years to retain practice rights. The expiration date is based on the month and year the application was originally approved. The CBA mails renewal forms with instructions approximately two months before the firm’s license expiration date.
Failure to renew within five years of expiration will result in cancellation of a corporation’s license. A cancelled license cannot be renewed, reinstated, or restored.
If a corporation’s license has been cancelled, the shareholder(s) must reapply and be approved for licensure before practicing or holding out to the public as an accountancy corporation.
The application and initial license fees are $270. Your check, money order, or cashier’s check must accompany your application and be made payable to the California Board of Accountancy.
CPA Firm Name Rules California
The professional accountancy corporation’s name cannot be one which is false or misleading.
Also the name of your accountancy corporation in CBA records (and on file with the Secretary of State) is the only name under which it may practice accounting.
Articles of Incorporation must be submitted with the application. The articles must indicate incorporation as a professional accountancy corporation, not a general corporation.
The articles must be endorsed and approved by the California Secretary of State. Additionally, the name on the Articles of Incorporation must match the name on the application submitted for license as an accountancy corporation, as well as on all documentation submitted.
Who Regulates Professional Accountancy Corporations?
According to the California Corporations Code 13401(b), all professional corporations must be registered with the corresponding government agency that is tasked to manage their profession.
California accountancy corporations must be approved for license by the California Board of Accountancy (CBA) before practicing or holding out to the public as an accountancy corporation.
Benefits Of Starting A Professional Accountancy Corporation
There are plenty of benefits of incorporating a professional accountancy corporation in California.
Correctly starting an accountancy corporation in California will limit your personal liability against creditors and lawsuits, minimize the self-employment taxes of the shareholders, allow you to build corporate business credit, and much more.
Can a CPA firm be an LLC in California?
According to Corporate Code Section 17375, accountants cannot practice accountancy as an LLC and must form a professional corporation, based on underlying Corporate Code concerning Professional Corporations.
If you’re an accountant, you’re prohibited from forming an LLC or a traditional corporation for your practice and instead must register as a Professional Corporation.
Who Can Be A Shareholder Of The Professional Accountancy Corporation?
Each director, shareholder, and officer of the professional accountancy corporation MUST be licensed to practice public accountancy. The director of an accountancy firm must be a licensed shareholder.
Shares of stock in the accountancy corporation may only be issued to people who are licensed to practice accountancy. Any shares shares issued to others who do not practice accounting are void.
A corporation also may have a non-licensee shareholder, vice-president, or secretary (officer).
However, a non-licensee may not be both a shareholder and an officer. A non-licensee cannot be a director of the firm.
Also, shares in the accountancy corporation may only be transferred to those who are licensed to practice accounting, to a shareholder of the corporation or to the professional accountancy corporation itself.
Non-Licensee Owners of California CPA Firm
If a non-licensee is a shareholder, the non-licensee must materially participate in the business of the firm. Non-licensees must comprise a minority of owners.
The only exception is that a firm with two shareholders may have one shareholder who is a non-licensee. At initial licensing and at license renewal, the firm must certify that any non-licensee owner with his or her principal place of business in California has been informed of the rules of professional conduct applicable to accountancy firms.
A declaration is required to be signed by a licensed shareholder of the firm upon application for firm registration.
Out-Of-State Shareholders of Accountancy Professional Corporation
Shareholders of the accountancy corporation or employees of an accountancy corporation wanting to practice in California who live out of state must file an application for license prior to practicing in California.
What Happens If A California Accountant Shareholder Becomes Disqualified From Practicing Accountancy
If a California accountant shareholder becomes ineligible to practice accounting in California or is legally disqualified from rendering professional services to the accountancy corporation, she must sell or transfer her shares to a qualified shareholder within 90 days of her ineligibility or disqualification.
Can A Professional Law Corporation Use a DBA Or Fictitious Name?
In California, A fictitious name can not be issued to an accountancy corporation.
Changing The Name, Address, Or Shareholder Of The Accountancy Corporation
Any time you change the shareholders or the address of the accountancy corporation, you must notify the CBA within 30 days. To change the name of the accountancy corporation, you must submit an accountancy corporation name change form before you can practice with the new name.
Corporations requesting a name change will be required to provide a copy of the amended Articles of Incorporation which have been endorsed and approved by the California Secretary of State.
What To Do Next
While these following these steps above might seem straight forward, one mistake while creating your Professional Corporation can cause your corporation to be rejected by the Secretary of State.
As a Business Lawyer for Professionals, I’ve assisted hundreds of professionals just like you start their California Accountancy Corporations and I can definitely help you with yours.
Start Your Online Business Today
Join 4,680+ Entrepreneurs Who Have Successfully Started Their Online Business So You Can Work Anywhere In The World And Be Your Own Boss