If you’re a psychologist, you SHOULD form a Psychology Corporation taxed as an S-Corporation.
If you’re a psychologist, you’re prohibited from forming an LLC or a traditional corporation for your psychology practice and instead must register as a Professional Corporation.
If done incorrectly, your Professional Corporation can be rejected by the Secretary of State, leaving you vulnerable to potential lawsuits and fines from various government agencies, and even the California State Board.
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.
Psychological Professional Corporation is a professional corporation which is registered with the California Secretary of State and the California Board of Psychology.
In California, all professional corporations must be registered with the corresponding governmental agency that is tasked to manage their profession. California Professional Psychological Corporations must hold a certificate of registration from the California Board of Psychology.
3 Steps to Starting a Professional Psychological Corporation
The 3 steps to starting a Professional Psychological Corporation are:
- File the Articles of Incorporation of a Professional Corporation with the Secretary of State to form the Professional Corporation
- Notify your Profession’s state agency that manages your profession, hold a Board of Director’s Meeting and appoint directors, get your Professional Corporation Bylaws drafted, apply for your EIN, file your Statement of Information, file Form 2553 for S-Corporation tax election, pay California corporate taxes to the California Franchise Tax Board, register with the EDD if you will be hiring employees, and apply for local business registration and licenses.
- Do all the steps above yourself or hire a Business Lawyer to do everything for you.
Benefits of a Psychological Professional Corporation
Incorporating a Professional Psychological 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.
Name Requirements of a Psychology Professional Corporation
The Professional Psychological Corporation’s name must include one of the following; “psychology,” “psychological,” “psychologist,” “psychology consultation,” “psychology consultant,” “psychometry,” “psychometrics” or “psychometrist,” “psychotherapy,” “psychotherapist,” “psychoanalysis,” or “psychoanalyst.”
It must also 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 which denote its corporate existence.
Also, “LLC” is not permitted as a corporate designation, and California does not certify an “LLC” for the purposes of practicing psychology, based on underlying Corporate Code concerning Professional Corporations.
Who Can Be A Shareholder Of The Professional Psychological Corporation
Each director, shareholder, and officer of the Professional Psychological Corporation MUST be one of the following licensed professionals in California: Licensed physicians and surgeons, Licensed doctors of pediatric medicine, Registered nurses, Licensed optometrists, Licensed marriage and family therapists, Licensed clinical social workers, Licensed chiropractors, Licensed acupuncturists, Naturopathic doctors, Licensed professional clinical counselors, or Licensed midwives.
However, the sum of all shares owned by those licensed professionals other than psychologists must not be more than 49% of all shares in the corporation. Any shares issued to others who do not are not the professionals listed above are void.
Also, shares in the Professional Psychological Corporation may only be transferred to those who are licensed to practice psychology, to a shareholder of the corporation or to the professional psychology corporation itself.
If a shareholder becomes ineligible to practice psychology in California or is legally disqualified from rendering professional services to the psychology corporation, she must sell or transfer her shares to a qualified shareholder within 90 days of her ineligibility or disqualification.
Can A Psychological Corporation Be Opened As An LLC In California?
A Psychological Corporation cannot be opened as an LLC in California. The California Corporations Code does not certify LLCs (Limited Liability Companies) for the purpose of practicing psychology.
For a psychologist to provide professional services in California, they must open a Professional Corporation.
Can A Professional Psychological Corporation Use a DBA Or Fictitious Name?
In California, a Professional Psychological Corporation can use a fictitious name so long as they file a fictitious business name statement within 40 days of starting the Professional Psychological Corporation.
You must also make a fictitious name filing in every local county recorder’s office for which you are practicing.
How To Start a Psychology Professional Corporation
Here are the 9 steps you must take to form the California Professional Psychological Corporation:
- File the Articles of Incorporation with Secretary of State and pay the filing fee. The filing fee is currently $100. You must also state within its Articles of Incorporation that its purpose is “Psychology”.
- Conduct a corporate meeting where you will issue shares and elect officials and directors for the Professional Psychological Corporation
- Create custom Professional Psychological 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 Psychological 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
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, costing you money and time.
As a Business Lawyer for Professionals, I’ve assisted hundreds of professionals just like you start their Professional Psychological Corporations and I can definitely help you with yours.
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