Are you a professional looking to start your corporation in California?
If you’re a lawyer, licensed doctors, dentist, accountant, psychiatrist, psychologist, or any professional in California, you’re prohibited from registering your business as an LLC, PLLC, or a traditional Corporation. Register it as a Professional Corporation under California law taxed as an S-Corporation instead.
Each profession has unique requirements when forming a Professional Corporation. If done incorrectly, the Secretary of State may reject it, risking you to lawsuits and fines. You may even face discipline from the professional regulatory board.
Here’s a step-by-step guide on what a California Professional Corporation is and how to form it. We can help you with our Done-For-You Professional Corporation Registration Service.
I’ve assisted hundreds of professionals just like you to start their professional corporation quickly and correctly.
|Bonus Material: We help professionals start their California Professional Corporation with our easy Done-For-You Professional Corporation Registration service. Email me at firstname.lastname@example.org or call me to start your Corporation today HERE.|
What is a California Professional Corporation?
A Professional Corporation is a unique corporation providing professional services in California practical instead of the traditional LLC or corporation.
According to the Moscone Knox Professional Corporation Act, you can only form California professional corporations for PROFESSIONAL services within a single profession requiring a license. For more info, click HERE.
A California Professional corporation can only lawfully render professional services through employees who are licensed to perform such services by the State.
The owner of the corporation usually requires a license for their profession. The State usually regulates them in some way.
The articles of incorporation of a professional service corporation must contain a specific statement that the corporation is a professional corporation within the Moscone Knox Professional Corporation Act.
No professional service corporation can render professional services in this California without a currently effective certificate of registration issued by the governmental agency regulating the profession in which such corporation is or proposes to be engaged.
Why Be a Professional Corporation Taxed as an S-Corporation?
If you don’t want your Professional Service Corporation taxed as an S-Corporation, the default status should be taxed as a C-Corporation. You can use losses to offset income from other sources. You will NOT be required to pay self-employment taxes on any additional corporate profits.
You SHOULD elect to have your corporation to be taxed as an S-Corporation. More on this below….
Requirements of a California Professional Corporation
California Business and Professions Code require that only LICENSED persons be shareholders of a corporation. A shareholder must be licensed in the profession that the corporation is engaged in.
Name Requirements of Professional Corporations
California Professional Corporations have strict name requirements for specific professions. The corporate name must comply with the profession’s rules and any other requirements.
It is essential to check the name availability with the California Secretary. It should be DISTINGUISHABLE from any other businesses on the California Secretary of State.
Each specific profession has its own name requirement, like particular words. Lastly, each domain has special suffix requirements; psychology will accept “P.C.” as the corporate ending.
Which Professions Need to Form a California Professional Corporation?
Unlike many other states, California does not allow professionals to form a registered limited liability company or professional limited liability company. In California, professionals must include either a professional services corporation or a registered limited liability partnership.
A professional service corporation qualified to render professional services in California must acquire all of the shares of a shareholder who is disqualified from rendering professional services in California or of a deceased shareholder licensed to render professional on their date of death services in this state.
Keep in mind that before forming a professional corporation, you should consider whether forming a professional service corporation (as opposed to other possible business entities such as LLC, LLP, etc.) is the best fit for your business.
A group of individuals interested in establishing a business together may have differing views on operating the company.
It may be worth it in the long run when you consider the necessity of protecting your personal and corporate assets and the potential profitability of your business.
To conclude, you should determine your particular business needs before forming a professional service corporation.
California Professional corporations formed outside California but intend to do business in the state must register with the California Secretary of State.
A Statement and Designation by Foreign Professional Corporation form must be completed and filed with the associated fees.
Foreign professional corporations must file a Certificate of Good Standing from the state where they were formed.
The following professions need to form a Professional Corporation in California:
- Speech Language Pathologists
- Marriage and Family Therapists
- Clinical Social Workers
- Dental Hygienists
- Licensed Physician Assistants
Eligible professionals must have a degree from any of the following graduate schools:
- Medical Board of California
- The State Bar of California
- The Dental Board of California
- California Board of Accountancy (CBA)
- The Veterinary Medical Board
- The California State Board of Pharmacy
- Speech-Language Pathology and Audiology Board
- Osteopathic Medical Board of California
- California Architects Board
- Court Reporters Board of California
- The Board of Behavioral Sciences (BBS)
- California Board of Registered Nursing
- California State Board of Optometry
- California Board of Psychology
Can a Professional Corporation Be an S Corporation?
A professional services corporation can and SHOULD be an S Corporation. S Corporation is a particular corporation that avoids regular C corp.’s double taxation disadvantages. S corps allow profits and some losses to be passed directly to the owners’ income without being subject to corporate tax rates.
You may avoid self-employment tax, saving you around 15.3%. You SHOULD have a business lawyer to prepare and file your Form 2553 with the IRS to get taxed as an S Corporation.
Unless you make this tax election and properly file the paperwork, your professional service corporation will default taxed as a C Corporation.
Email me at email@example.com for any questions about the S-Corp election process.
S Corporation Advantages for Professional Corporations
Enjoy the following:
• Avoid self-employment tax
• Avoid double taxation
• Being taxed as a pass-through entity like LLCs
• Pass losses from the business to offset your income tax liability
When in doubt, contact me at firstname.lastname@example.org so I can walk you through it.
Can I Form an LLC For My Professional Business?
Most states allow professionals to open Professional LLC (PLLCs) to practice their professions, but California does NOT permit licensed professionals to form any LLC.
California Revised Uniform Limited Liability Company Act rules that companies offering professional services must be registered as Professional Corporations or Limited Liability Companies.
Can A Disqualified Person Form A Professional Corporation?
If you’re licensed but disqualified, you cannot create a professional service corporation or be its director, officer, or shareholder.
Below is the guide to starting your professional corporation.
Step 1: Define Your Corporation
You may ask first:
- What legal entity my professional corporation will be considered?
- What is the tax regime for my entity in California?
While most states allow professionals to open PLLCs, California is otherwise. California Revised Uniform Limited Liability Company Act requires your company to register as a Corporation for a professional service. Source
By default, your corporation will be taxed as a C-Corp. Alternatively, you may opt for a tax election so that it will be taxed as an S-Corp instead.
Your Professional Service Corporation can and should be an S-Corp. by filing Form 2553 with the IRS through a business lawyer. Your company needs an identity.
You need a name, an address, a strategic location, and a clear business goal.
File the necessary Articles of Incorporation with the California State Secretary with your company’s name, address, address of service, number of shares, and purpose.
The requirements for each category depend on the professional service your corporation specializes in, and failure to comply may result in fines or rejection.
- The corporation’s name must be distinguishable from any other business. Check it here.
- Each profession will have its own name requirement.
- It should have special suffix requirements as the corporate ending.
Follow the instructions provided with the form for completing and filing your articles of incorporation.
Bonus Material: Check our easy Done-For-You Professional Corporation Registration service. Email me at email@example.com or call us here.
Step 2: Appoint Directors
Let’s talk about who’s in charge. Appoint the directors of your corporation.
Any California Professional Service Corporation must have at least three directors unless less than three shareholders. More details on this are at the California Corporations Code section 13403.
A professional service corporation is a corporation for business owners who work in specialized fields. In California, professional corporations are established under the Moscone-Knox Professional Corporation Act, California Corporations Code section 13400-13410.
Step 3: Draft Corporate Bylaws
Set your corporate bylaws, which are rules defining business operations and addressing issues like the size of the board of directors, their functions, their election, etc. Corporate bylaws are the nervous system of your company.
Professional Corporations should use specific language in their bylaws and abide by certain criteria and standards. They need a business lawyer’s advice in drafting laws.
Step 4: Get Your EIN
Back to taxes! Much like a Social Security number, an EIN (Employer Identification Number), or Tax ID, is a reference number that’s unique to your company.
You need an EIN when:
- Hiring employees;
- Filing federal taxes;
- Applying for local permits/licenses;
- Applying for loans/federal financial assistance programs.
You can do this online, by fax, or post, provided you have a Social Security Number (SSN). Learn more on the IRS website here.
Step 5: File a Statement of Information
Hang in there! File a statement of Information to ensure your company’s compliance with updated contact information.
Be careful with the deadlines and remember to resubmit it yearly. It must be filed within the first 90 days of registration. Then, file it annually if there are changes. Use this link to register online.
Step 6: File Form 2553 for S-Corporation Tax Election
It is time to file for the corporate election. File an election with the IRS using Form 2553 for the tax treatment of an S-Corp. Do this within the first two months and fifteen days of the tax year when the election takes effect. Otherwise, your election will only be effective from the next tax year.
Let an attorney help you with this. Check our Done-For-You Professional Corporation Registration service. Email me at firstname.lastname@example.org or call me today here.
Bonus Material: You can read more about this topic here.
Step 7: Pay Your Taxes and Fees to the California Franchise Board
Professional corporations need to pay a minimum annual tax of $800 to the California Franchise Tax Board.
Your first Franchise Tax payment is due by the 15th day of the 4th month after filing. Then, every year after your first payment, it is due by April 15th, and failure to pay before the deadline can have serious consequences.
Hire an accountant to help you out. You can contact the California Franchise Tax Board (FTB) for any taxation-related questions.
Bonus Material: Consult the FTB website for more information.
Step 8: Register With the EDD
Do you plan on hiring any employees? Source
Register as an employer with the California Employment Development Department (EDD). You have to pay payroll tax even if your corporation only has a president without other employees and is paid over $100.
Register your EDD payroll tax account number here.
9. Apply for Local Business Registration and Licenses
Get your corporation registered with the city or county where you’re operating business. Get all the federal and local permits to work legally. The requirements can vary, depending on your business location and services.
Bonus Material: Email me at email@example.com or contact us here to ensure you meet the requirements.
10. MORE LEGAL PAPERWORK! (or maybe not…)
Paperwork and deadline may sometimes be confusing and complicated. DON’T BE FRET!
Take the complicated, time-consuming steps detailed in this article to form your California Professional Corporation yourself properly, or you can hire me to do it for you. So, sit back, relax, focus on your passion and let us take care of everything for you.
To be successful, you need:
- Residency in California. This guide aims at professionals who want to start a corporation in this state. Otherwise, you may try in Wyoming.
- Be a licensed professional.
- Openness to collaborate. Collaboration is key.
CA Corporations Code Section 13401.5 contains the list of licensed professionals who may be shareholders of certain specified Professional corporations, as long as such people’s total share in the professional service corporation does NOT exceed 49% of the total number of shares of the professional service corporation.
If you meet the above criteria and are serious about starting your corporation in California, contact us here to start! We have helped many professionals with our easy Done-For-You Professional Corporation Registration service. Email me at firstname.lastname@example.org or call me today here.
Let me help you start your professional corporation in California as quickly and efficiently as possible. Email me at email@example.com.
Law Corporation for Lawyers and Attorneys
If you’re a lawyer/attorney in California, you SHOULD form a Professional Law Corporation and follow the rules of the California State Bar and the California Rules of Professional Conduct.
The corporation’s name must include a corporate ending such as: “A Professional Corporation,” “P.C.,” “Inc.,” etc. The professional law corporation’s name cannot include “APLC,” “PLC,” or “LLC” as its corporate endings.
The corporate name in State Bar records (and on file with the Secretary of State) is the only name it may practice law. The professional corporation must also state within its Articles of Incorporation that its purpose is “law.”
Dental Corporation for Dentists
The corporation’s name must contain the name or the last name of one or more of the present, prospective, or former shareholders and must include the words “dental corporation,” “Professional Corporation,” “Inc.,” etc. If you’re opening your corporation under a fictitious name, file a fictitious business name statement in the county of operation and the California Dental Board.
Medical Corporation for Doctors and Physicians
Doctors/physicians SHOULD form a Professional Medical Corporation. Be licensed by the Medical Board of California to open a medical corporation.
Here, at least 51% of the shares must be owned by a licensed physician/surgeon. Under the Business and Professions Code, physicians can only partner with other physicians, osteopaths, or podiatrists. Get the Board’s pre-approval for a fictitious business name other than your name.
Accounting Corporation for Accountants
Accountants/CPAs SHOULD form an accountancy corporation. Be licensed by the California Board of Accountancy (CBA) to create a corporation. Have at least one shareholder with an active CPA or PA license.
Veterinarians SHOULD form a veterinary corporation.
Only licensed veterinarians can be shareholders of this corporation. Other licensed professionals can become officers, directors, or professional employees if the shares they own are not over 49% of all the corporate shares. The corporation’s name may include the word veterinary and either “Corporation” “Corp.” “Incorporated” or “Inc.”
Pharmacy Corporation for Pharmacists
Pharmacists MUST form a pharmacy corporation. The name of the corporation and any word containing “pharmacist,” “pharmacy,” or “pharmaceutical” and wording or abbreviations like “corp.” or “Inc.”
Every shareholder, director, and officer of a pharmacy corporation, except an assistant secretary and an assistant treasurer, must be licensed as defined in Section 13401 of the Corporations Code.
Audiology Corporation for Audiologists
Audiologists licensed by the Audiology Board MUST form an Audiology Corporation.
The corporation’s name must include “audiology,” “audiologist,” “audiological,l” “hearing clinic,” “hearing clinician,” “hearing therapist,” or any similar name.
Chiropractic Corporation for Chiropractors
Chiropractors MUST form a chiropractic corporation.
Professional chiropractic corporations may NOT use fictitious names. The corporate name must include “chiropractic,” the name or last name of one or more present, prospective, or former shareholders, and the word “corporation” or other word denoting corporate existence.
You must also submit a Certificate of Registration to the California Board of Chiropractic Examiners.
Optometric Corporation for Optometrists
Optometrists MUST form an optometric corporation. The corporation’s name must have the owner’s name.
A licensed optometrist must own at least 51% of the corporate shares. The other 49% can be owned by physicians and surgeons, podiatrists, psychologists, registered nurses, marriage and family therapists, clinical social workers, physician assistants, chiropractors, acupuncturists, naturopathic doctors, or any other licensed person.
Podiatry Corporation for Podiatrists
Podiatrists registered with the California Secretary of State, the Medical Board of California, and The American Board of Pediatrics MUST form a Podiatry Corporation.
The corporation’s name must contain the name or the last name of one or more present, prospective, or former shareholders. It must include a corporate ending such as: “Podiatry Corporation,” “Podiatry Corp.,” “Podiatrist,” “Doctor of Podiatric Medicine,” “D.P.M,” “A Professional Corporation,” “Professional Corporation,” “APC,” “A.P.C.” “PC,” “Prof. Corp.,” “Inc.,” “Incorporated,” “Corporation,” “A California Professional Corporation” or words or abbreviations denoting its corporate existence.
Physician Assistant Corporation for PA’s
Physician assistants MUST form a Physician Assistant Corporation.
Incorporating a Professional Licensed Physician Assistants Corporation will limit your liability against creditors and lawsuits, minimize the self-employment taxes of the shareholders, allow you to build corporate business credit, and much more.
The corporation’s name must contain the words “physician assistant.” It must include a corporate ending such as: “A Professional Corporation,” “Professional Corporation,” “APC,” “A.P.C.” “PC,” “P.C.,” “Prof. Corp.,” “Inc.,” “Incorporated,” “Corporation,” “A California Professional Corporation” or words or abbreviations denoting its corporate existence.
Nursing Corporation for Nurses
Nurses MUST form a nursing corporation.
The corporate name must include “nursing” or “registered nursing”. It must.”ncludincludee a word or abbreviation showing its corporate existence like “Corporation” “Corp.” “Incorporated” or “Inc.” Fictitious name can be used so long as the words “nursing” or “registered to nurse” is part of the name.
Speech-Language Pathologist Corporation
Speech-Language Pathology Board of California licensed Speech-language pathologists MUST form a Speech-Language Pathology Corporation.
The corporate name must include “speech pathologist” “speech pathology,” “speech therapy,” “speech correction,” “speech corrections,” “speech therapist,” “speech clinic,” “speech clinician,” “language pathologist” “language pathology” “logopedics” “logopedist” “communicology” “communicology” “aphasiologist” “voice therapy” “voice therapist” “voice pathology” “voice pathologist” “language therapist” “podiatrist”, or any other similar titles.
Engineer Corporation for Engineers
Engineers are highly recommended to create a professional engineering corporation.
While engineering practices are allowed to be LLCs in limited situations, creating a professional corporation is more beneficial. There are many benefits to incorporation, like limiting personal liability, obtaining business credit without a personal guarantee, and passing profits and losses to shareholders to avoid double taxation.
If the corporate name contains a unique name, that person must be a licensed engineer, land surveyor, architect, or registered geologist.
Also, professional engineering corporations are allowed to use a Doing Business As (DBA) or a fictitious name.
Architectural Corporation for Architects
Architects may create a professional architectural corporation.
The corporation’s name must contain the name or the last name of one or more of the present, prospective, or former shareholders, or of someone associated with a predecessor person, partnership, or other organization and whose name or names under the predecessor organization.
Its name must include either the words “architectural corporation” or “architect” or “architects” and wording showing corporate existence such as “Corporation” “Corp.” “Incorporated” or “Inc.”
California Professional Corporation for Physical Therapists
Physical therapists MUST form a professional physical therapy corporation.
Each shareholder, director, and officer of a physical therapy corporation, except an assistant secretary and an assistant treasurer (must be a licensed person defined in Section 13401 of the Corporations Code).
The corporation’s name must contain the words “physical therapy” or “physical therapist” and any wording or abbreviations showing corporate existence like “Corporation” “Corp.” “Incorporated” or “Inc.”
Marriage and Family Therapist Corporation
Marriage or family therapists MUST open a marriage and family therapy corporation.
The corporate name must contain one or more of the words “marriage,” “family, have,” or “child.” It must include one or more of the words “counseling,” “counselor” “therapy,” or “therapist.”
California Clinical Social Worker Corporation
Licensed clinical social workers MUST open a clinical social worker corporation.
The name of the corporation must include the words “licensed clinical social worker” and a word or abbreviation showing its corporate existence like “Corp.” or “Inc.” Using a fictitious name here isn’t allowed.
Psychology Corporation for Psychologists
Psychologists MUST open a Psychology Corporation. The corporate name must include “psychology,” “psychological,” “psychologist,” etc.
It must include a word or abbreviation showing its corporate existence like “Corporation” “Corp.” “Incorporated” or “Inc.”
WHAT TO DO NEXT
If you’re a lawyer, doctor, dentist, accountant, pharmacist, veterinarian, architect, optometrist, nurse, speech-language pathologist, audiologist, dental hygienist, family therapist, psychiatrist, or psychologist, you probably don’t have the time to do all of the complicated above steps yourself to start your business.
While the ten steps above give a basic overview of what is required to form the Professional Corporation, several complicated nuances may affect the formation of your Professional Corporation.
Most problems that corporations run into in the long run are caused by mistakes in the formation stage of the professional corporation.
One of the best things you can do is work with a business lawyer who can help you get started with your Professional Corporation without dealing with the legal headache of understanding the intricacies of proadequatelyling your professional corporation.
If you’re interested in starting your Professional Corporation, email me at firstname.lastname@example.org
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