Can An Accountant Have An LLC In CA?

It is a go-to choice for most licensed professionals to form a regular LLC. One of the most significant advantages of this structure is that it will allow the professionals to run their show.

Also, the fact that it lets them limit their liability can not be taken for granted.

But where LLC is not possible, PLLC is the right choice. However, in CA, things are pretty different. That is why the question of can an accountant have an LLC in CA is so common. And the answer to that will be a no.

Professionals in California are positioned at a higher standard. That is one of the reasons why. However, that is just the tip of the iceberg for the topic. There is so much that you need to know!

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What Structure Can You Form As An Accountant?

The LLC act of California prohibits different professions from forming an LLC. However, there are some exceptions. As we have briefly discussed, the professionals have a higher position in CA.

They play a huge role when it comes to upholding the safety of the public.

For that reason, the Legislature of California does not allow professionals to limit their liabilities for mistakes they might make along the way.

That said, the ideal structure for a CPA that is licensed in CA is a professional accountancy corporation. Generally, S Corp is the way to go for these professionals.

Usually, the fees to set up an S corporation vs. LLC is pretty identical. And there are many advantages of S corp compared to LLC as well. And most of the advantages come from the taxation procedure.

Ideally, a CPA without any corporation must be very cautious regarding tax preparation and consultation.

But, you should be fine if you just run a bookkeeping service. But the thing is, operating a bookkeeping service as a licensed CPA in CA is just putting a limit on what you can do.

In this case, the best alternative would be to create two separate companies. One for professional accountancy and the other for bookkeeping.

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The Basics of Forming A Professional Corporation

Before you go ahead and take the decision to form a professional corporation, you need to have a clear understanding regarding it.

Although a professional corporation is pretty similar to a regular corporation, it differs in many ways. For example:

  • No one other than licensed professionals will be allowed to form a Professional Corporation
  • The corporation must create for the sole purpose of rendering nothing but professional services
  • For the fulfillment of the laws, the president, vice president, director, and treasurer should also be licensed professionals
  • All of the shareholders need to be licensed professionals
  • It will only be possible to transfer the shares of stock only to other licensed professionals
  • A shareholder is not allowed to delegate their powers to a non-licensed person
  • The Professional Corp needs to follow the strict rules of the licensing body and comply with the regulations of the government agency that regulates the profession
  • A Professional Corporation can employ non-licensed workers, but they can not provide professional services in the business

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Taxation of A Professional Corporation

If you go through the route to form a professional corporation, you should know that you can leave the taxation in the default status. In that case, you will be considered a C corporation.

On the other hand, you can decide to elect the professional corporation as an S corporation.

Doing so, you will save money on self-employment taxes when the business’s net income is substantial enough. And that is why many professionals will opt for S Corp instead of C Corp.

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Final Words

So, can a accountant have an LLC in CA? The answer is a clear no! The professionals have a higher overall position in California. And the state wants them to fulfill their role of upholding the public’s safety properly.

Instead, you should form a Professional Corporation if you plan to operate in California.

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