The Beginners Guide to Professional Corporations

Are you a professional looking to start your own business but don't know how to set it up? If you are a professional like a doctor, lawyer, or accountant then you may need to form a professional corporation. In this video, I’ll explain what a professional corporation is, who needs to form a corporation, and how to set one up. 

What is a Professional Corporation?

So, what is a professional corporation? According to the Moscone-Knox Professional Corporation Act:

"A corporation organized under the General Corporation Law or pursuant to subdivision (b) of Section 13406, that is engaged in rendering professional services in a single profession, except as otherwise authorized" CALIFORNIA CORPORATIONS CODE, §§ 13400-13410

This means anyone who is licensed under the provisions of the Business and Professions Code as a professional needs to form and operate the business as a corporation. If you are new to the business, a corporation is a separate business entity you want to learn more about what a corporation is, check out this guide here.

Who can become a Professional Corporation?

Professionals like doctors, dentists, architects, accountants, engineers, lawyers, and veterinarians are required to be professional corporations because of their licensing requirements. Other licensed service providers like barbers and cosmetologists are some of the exceptions to this rule. While they are required to be licensed to practice their trade in California they are not required to form a corporation in California under this code.

A small note about Accountants, Architects, and Lawyers: They can be professional corporations but don't have to be. A Limited Liability Partnership or LLP is an alternative for these professionals to form their business. These are the only professionals who can form LLP in California and if you are interested in forming LLP check out this link here.

Setting up a Professional Corporation

Setting up a professional corporation is almost exactly the same as forming any other corporation. So if you want to know how that process works check it out here. You will still need a registered agent and file a statement of information. You will also need bylaws and submit meeting minutes.

Now, filing the articles of incorporation are little different because we will be using the Professional Corporation form in the CalBizfile portal under Professional corporation, also known as form ART-PC. You will still need to choose the name and shareholder for your corporation as well. Many of the questions asked and the information you will need to provide is the same as forming a C-corporation.

A quick note about shareholders in a professional corporation: when it comes to accountants, architects, and lawyers the shareholders must be licensed professionals in the corresponding field. So, licensed lawyers can only be shareholders in a legal corporation and likewise for accountancy and architectural corporations. Again there are exceptions, medical corporations are not restricted by this rule. Medical corporations require shareholders must own at least 51% by a licensed professional in the same field.

Conclusion

Starting a business as a professional is complex but is possible to set it up yourself. You can meet with a consultant here at the University of La Verne SBDC to help you with the process. If you have the money you can consult with a licensed lawyer to help set up your professional corporation for your new business.

Let me know what you think. Are you looking to start a business and do you have questions about a professional corporation or if you need one? Let me know in the comments below.

Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.