A California professional corporation provides a tool for certain licensed professionals to conduct business. As with other corporations, the professional corporation shields personal assets from liability and corporate debts. Understand how a California professional corporation works.
California professional corporation in the process of forming
What Is A California Professional Corporation?
Members of certain professions, such as lawyers, doctors, accountants, and engineers, may form a California professional corporation (also known as a “PC”). Typically, these types of entities provide services only through licensed professionals.
A professional corporation conveys limited liability to its members just as a regular corporation. However, in most cases, the corporation does not convey limited liability for the malpractice of the individual members. Ideally, professionals manage that type of risk through malpractice insurance policies.
Also, a California professional corporation must do standard corporate maintenance, such as timely filing a Statement of Information.
More About Setting Up A California Professional Corporation
A California professional corporation may have to register with a state agency. For instance, a law firm would have to register with the State Bar of California. Other professions would register with the relevant agency or licensing agency.
Also, in some cases, California law imposes naming requirements on professional corporations. For example, an architecture firm may have to include the name or last name of the licensed architect plus the word “architects.” These rules vary and change, so it is crucial to seek professional counsel before selecting a name for your business.
Members of a California professional corporation should also think carefully about tax issues and whether or not to choose to be taxed as an S-corporation. See also California Franchise Tax Board information about the S-corporation election.
Professional Corporation for Architects
Generally, only licensed California architects may hold shares in a California professional corporation formed for providing architectural services. Typically, an architecture corporation shields members from liability, with some exceptions.
California law spells out a variety of requirements for professional architecture corporations.
California Professional Corporation Name Requirements
A California professional corporation must comply with California’s rules for naming corporations. Some licensing bodies may have additional requirements, but the California Corporations Code sets forth basic rules:
- The name cannot include the words “bank,” “trust,” “trustee,” or similar words without approval.
- Any name chosen may not deceive the public. The California Secretary of State decides if a name misleads.
- A name should not resemble or be the same as an existing corporate name. This determination differs from the likelihood of confusion analysis for trademarks.
So, before settling on a name for your company, invest in speaking with an attorney.
What are some types of professions that use a professional corporation?
Although not an exhaustive list, here are some professions that may require a California professional corporation:
- Law
- Accounting
- Architecture
- Engineering
- Medicine
- Psychology
- Nursing
- Optometry
- Dentistry
- Physical Therapy
When deciding whether your business requires a professional corporation, check with the relevant board for your profession and always consult with an attorney.
Common Mistakes to Avoid When Setting Up A California Professional Corporation
While a California professional corporation provides many benefits, smart business owners avoid common mistakes.
Failing to register with appropriate licensing agencies represents one of the biggest mistakes a business owner can make. In many cases, if you don’t register your professional corporation with the appropriate licensing agency, it could invalidate it. Make sure you understand these requirements or ask competent legal counsel for help.
Second, smart business owners consult with tax professionals when setting up any business entity. Not understanding the tax requirements for your business results in headaches and penalties.
Finally, not understanding how operate a business represents a major pitfall. Setting up a California professional corporation seems easy, but the real work comes from knowing how to keep everything in good standing.
We help business owners get a complete picture of what they need to do to thrive and avoid these and other mistakes.
