A professional corporation, usually abbreviated P.C., is a legal entity that allows licensed professionals, such as attorneys, engineers, accountants, and physicians, to take advantage of the benefits offered by organizing a business under the structure of a corporation. Due to the additional requirements of organizing and operating a professional corporation in California, it is advisable to consult with a corporate attorney in San Diego before and during the formation process.
Under California law, a Professional Corporation is formed by filing Articles of Incorporation with the California Secretary of State. However, unlike the traditional corporation, there are limitations on those who may be shareholders of a Professional Corporation. Specifically, all owners of a Professional Corporation must hold a professional license in the field in which the Professional Corporation intends to offer services. For example, if the corporation is formed to offer medical services, such as a physicians’ practice group, then all owners must be licensed by the California Medical Board.
Further, the corporation must have at least one professional director and officer and all directors and officers must be licensed professionals. However, in cases where there is only one shareholder, a non-professional may serve as the vice-president or secretary. In such cases, the President and the Treasurer must still be licensed professionals.
In addition to the California Secretary of State corporate filing requirements, Professional Corporations are required to comply with the rules and regulations of the applicable state board that oversees the profession. Most boards require that the Professional Corporation register with the board and to regularly update the board regarding change in ownership, addresses and licensing. It's thus important that professionals carefully review the rules and regulations promulgated by the applicable board and consult with a San Diego corporate lawyer for assistance.
The following are the some of the types of professional corporations and the corresponding licensing bodies:
- Medical Services – Medical Board of California (or any examining committee under the jurisdiction of the Medical Board of California)
- Osteopathy Services – Osteopathic Medical Board of California
- Pharmaceutical Services – California State Board of Pharmacy
- Veterinary Services – California Veterinary Medical Board
- Architectural Services – Architects Board
- Court Reporting Services – Court Reporters Board of California
- Nursing Services – Board of Registered Nursing
- Optometry Services – State Board of Optometry
Forming a Professional Corporation with the assistance of a corporate lawyer in San Diego provides protections afforded other formal business entities including tax benefits and limited liability. Like other corporations, they are able to take advantage of corporate tax deductions, health insurance, employee benefits and retained earnings. They may also elect to be taxed as S-Corporations. Professional Corporations that provide services in the fields of health, law, engineering, architecture, accounting, actuarial science, or consulting are considered “qualified personal service corporations” and pay a flat federal tax rate of thirty-five percent.
Although professionals cannot protect themselves from their own negligent and criminal conduct, they can insulate their personal assets from debt, bankruptcy and the negligent or criminal conduct of others. In addition, they are typically required by the various California governing boards to maintain adequate malpractice insurance. Whether or not required by the governing board, it is wise for professionals to maintain adequate insurance.
Another benefit that P.C.’s provide is a limited form of corporate legal protection. Although a P.C. will not shield members from legal liability for malpractice claims, it will protect those members who were not involved in the malpractice of another member from liability. In addition, the P.C. will protect the assets of members from claims not based on malpractice. For example, if a patron of a medical P.C. were to slip and fall in the parking lot, the P.C.’s members’ personal assets would be protected from any legal claims arising from the fall.
If you have questions about forming a professional corporation, consult San Diego corporate lawyer Donald R. Oder today.