Quick answer: Forming a California Professional Accountancy Corporation requires confirming profession eligibility under the Moscone-Knox Professional Corporation Act (California Corporations Code §§ 13400–13410), selecting a compliant business name, filing Articles of Incorporation with the California Secretary of State, drafting bylaws, obtaining an EIN, holding an organizational board meeting, filing a Statement of Information, making an S corporation election, and filing a Limited Offering Exemption Notice.

Licensed accountants in California face a narrow set of business structure options. The California Professional Accountancy Corporation is, for most licensed accountants, the only entity structure permitted to deliver professional services in corporate form. This post outlines each step required to establish a California Professional Accountancy Corporation, explains the key structural differences from other entity types, and highlights the compliance obligations that follow formation.

Working with an experienced corporate attorney throughout this process is not optional—it is essential. The Moscone-Knox Professional Corporation Act imposes profession-specific requirements, and errors at the formation stage can jeopardize the standing of a California Professional Accountancy Corporation with the California Board of Accountancy, its tax elections, and its securities law compliance.

What is a California Professional Accountancy Corporation?

A California Professional Accountancy Corporation is a corporation organized under California Corporations Code §§ 100–2319 for the purpose of rendering professional services in the profession of accountancy. Under California Corporations Code § 13401(b), “professional services” are any services that may be lawfully rendered only pursuant to a license, certification, or registration.

Eligible professions include accountancy. The full list of eligible professions and their corresponding statutory authority is set forth in California Corporations Code § 13401.5 and the applicable sections of the California Business and Professions Code.

California Professional Accountancy Corporations are governed by the Moscone-Knox Professional Corporation Act (California Corporations Code §§ 13400–13410). The General Corporation Law applies to California Professional Accountancy Corporations except where its provisions conflict with or are inconsistent with the Moscone-Knox Act. California Corporations Code § 13403.

How Does a California Professional Accountancy Corporation Differ from a General Stock Corporation?

A California general stock corporation—including a corporation electing S corporation status—may be owned by a shareholders regardless of licensure. A California Professional Accountancy Corporation is different: it is a separate legal entity and business entity formed under California law to provide accounting services. Shares may only be issued to, and held by accountants subject to profession-specific exceptions. Officers, corporate directors, and professional employees must also generally be licensed persons, subject to limited statutory exceptions. Eligible professions are defined under California Corporations Code §§ 13401(d) and 13401.5, and these entities are used by solo practice owners with only one shareholder as well as firms with multiple shareholders. Both a general stock corporation and a California Professional Accountancy Corporation may elect S corporation status for federal tax purposes, and both are subject to California’s $800 annual minimum franchise tax. The critical distinction is ownership eligibility. A general stock corporation cannot lawfully render professional services requiring a license under California law. Unlike regular corporations or a traditional corporation that may provide other services, a California corporation formed as a California Professional Accountancy Corporation must follow state rules, including filing the required paperwork with the California Secretary of State’s office and meeting name standards that apply; those legal obligations help preserve liability protection for owners’ personal assets.

Why Can’t a California Accountant Use an LLC or PLLC?

California does not permit licensed accountants to practice using any limited liability company structure, even though traditional corporations and other regular corporations may be owned without the same licensure restrictions. California Corporations Code § 17701.04(b) expressly prohibits LLCs from rendering accounting services as defined in California Corporations Code § 13401(a), unless the applicable provisions of the Business and Professions Code for a specific profession explicitly authorize an LLC to hold the requisite license. A professional LLC is likewise not recognized under California law. California Corporations Code § 17701.04(b); see also 102 Ops Cal Atty Gen 1 (2019). Licensed accountants are prohibited from forming standard LLCs in California. A California Professional Accountancy Corporation is different: unlike a sole proprietorship, it is reserved for licensed practice, and only accountants and certain other persons may own shares, serve as corporate directors, or act as professional employees, subject to limited statutory exceptions. It may have one shareholder or multiple shareholders, and if there are fewer shareholders the director requirement is reduced accordingly; otherwise, professional corporations must have at least three directors. Licensed accountants who wish to operate in a pass-through entity structure must use a California Professional Accountancy Corporation (which may be taxed as an S Corporation), which unlike ordinary corporations is specifically designed to provide accounting services while helping protect owners’ personal assets from business debts, though legal obligations and personal malpractice still remain.

Should a Licensed Accountant Consider a California General Partnership?

California General Partnerships expose each partner to unlimited personal liability for the debts, obligations, and torts of the partnership and its partners, and unlike a limited liability company, California generally does not allow licensed professionals to render services through an LLC unless a statute specifically permits it. A California Professional Accountancy Corporation limits personal liability for the commercial and general liability obligations of the California Professional Accountancy Corporation, as well as for the malpractice of co-shareholders—though accountants cannot limit their own malpractice liability through corporate form. California Business and Professions Code § 6160. California General Partnerships are also tax-inefficient compared to a California Professional Accountancy Corporation taxed as an S-Corp: California General Partnership income is subject to self-employment tax on all net profits, whereas a California Professional Accountancy Corporation that makes the election can offer potential tax benefits by allowing shareholders to receive a reasonable salary subject to payroll taxes, with remaining distributions not subject to self-employment tax. Compared with a sole proprietorship, this structure also creates a separate entity for licensed practice where California does not offer the professional LLC option.

Step 1: Determine Whether a California Professional Accountancy Corporation is Required

Before you form a California Professional Accountancy Corporation, confirm that the intended profession is eligible for incorporation under California law and that the California Board of Accountancy permits or requires a certificate of registration for California Professional Accountancy Corporations. California requires accounting practices to satisfy profession-specific state requirements. California Corporations Code §§ 13401(a), 13401.3.

An experienced corporate attorney can confirm whether a California Professional Accountancy Corporation is required for a given profession, what registration or certificate requirements apply, and whether any profession-specific restrictions affect ownership, governance, or naming; when properly taxed as an S-Corp, it may also offer tax benefits by allowing a reasonable salary with remaining profits distributed separately.

Step 2: Complete Pre-Filing Requirements

• Confirm shareholder eligibility. All shareholders must hold a required professional license. California Corporations Code §§ 13401(b), 13401.5. Other licensed professionals may hold shares as long as their combined ownership does not exceed 49% of all outstanding shares and they do not outnumber the number of licensed accountants.
• Choose a compliant business name. The name of the California Professional Accountancy Corporation must comply with the naming rules of the California Board of Accountancy, and the California Secretary of State reviews filings for compliance. California Corporations Code § 13409. An experienced corporate attorney can confirm name compliance before filing and help ensure the Articles include required stock shares information and any additional details.
• Appoint a registered agent. A California Professional Accountancy Corporation must designate an agent for service of process with a California street address. P.O. boxes are not acceptable.

Step 3: File Articles of Incorporation with the California Secretary of State

The Articles of Incorporation should be prepared by an experienced corporate attorney and must comply with the Moscone-Knox Professional Corporation Act; pre-filing review may also require general details that later appear in state filings to form the legal entity. Required elements include:

• Choose a compliant business name that satisfies rules of the California Board of Accountancy, the California Business and Professions Code, and California Secretary of State requirements. Names must be distinguishable from existing business entities.
• A statement that accountancy is to be practiced and that the California Professional Accountancy Corporation may practice only that profession. California Corporations Code § 13404.
• A statement that the corporation is a professional corporation within the meaning of the Moscone-Knox Professional Corporation Act (California Corporations Code §§ 13400–13410). California Corporations Code § 723 (see also California Corporations Code § 13401(b)).
• Appoint a registered agent by designating the name and California street address of the agent for service of process to receive legal documents.
• Include the corporation’s stock shares information as required in the foundational filing documents.

The Articles of Incorporation are filed with the California Secretary of State. The filing fee is $100. A certified copy of the Articles of Incorporation may be obtained for an additional $5. The California Professional Accountancy Corporation is considered formed on the date the Secretary of State receives the filed Articles of Incorporation. California Corporations Code § 110.

Step 4: Draft Bylaws for the California Professional Accountancy Corporation

Bylaws govern the internal affairs of the California Professional Accountancy Corporation, and filing the Articles creates the legal entity under California law. They should be drafted by an experienced corporate attorney and must be compliant with the Moscone-Knox Professional Corporation Act. Bylaws address shareholder eligibility and share ownership rules, the rights and responsibilities of directors and officers, the scheduling and conduct of board of directors and shareholder meetings, and procedures for transferring or redeeming shares when a shareholder becomes a disqualified person. They are often paired with shareholder agreements that clarify owner rights, governance rules, profit sharing, and decision-making, but shareholder agreements are not required. California Corporations Code §§ 13401(e), 13407.

Step 5: Obtain a Federal EIN from the IRS

A federal Employer Identification Number (EIN) is required for the California Professional Accountancy Corporation to open bank accounts, hire employees, and file federal and state tax returns. An experienced corporate attorney can apply for the EIN directly from the IRS on behalf of the California Professional Accountancy Corporation.

Step 6: Draft Minutes of Organizational Meeting of the Board of Directors

The organizational meeting of the board of directors is a foundational corporate formality. At this meeting, the board approves the bylaws, elects officers, authorizes the issuance of shares, and takes other actions necessary to organize the governance of the California Professional Accountancy Corporation. All directors and officers must satisfy the licensing requirements of the Moscone-Knox Professional Corporation Act. California Corporations Code § 13403.

Step 7: Draft and File the California Statement of Information

A California Professional Accountancy Corporation must file an initial Statement of Information with the California Secretary of State within 90 days of the date the Articles of Incorporation are filed. The filing fee is $25. The Statement of Information discloses the principal office address, the names and addresses of directors and officers, and the agent for service of process.

Step 8: Draft and File the S Corporation Election (IRS Form 2553)

A California Professional Accountancy Corporation that does not make an S corporation election will be taxed as a personal service corporation at the corporate tax rate under Internal Revenue Code § 11(b)(2). Distributions characterized as unreasonable compensation will be subject to tax at both the corporate and shareholder level. California Revenue and Taxation Code §§ 23151, 23501.

An experienced corporate attorney should draft IRS Form 2553 to elect S corporation status. The election must be filed within the deadline prescribed by the Internal Revenue Code to be effective from the date of incorporation. An S corporation election allows income, losses, deductions, and credits to pass through to shareholders, avoiding double taxation, while shareholders earning wages pay payroll taxes on reasonable salary rather than self-employment tax on all net profits.

Step 9: Draft and File the Limited Offering Exemption Notice

The issuance of shares in a California Professional Accountancy Corporation constitutes a securities transaction under California law. An experienced corporate attorney should draft and file the Limited Offering Exemption Notice (sometimes referred to as a 25102(f) notice or LOEN) with the California Department of Financial Protection and Innovation. This filing notifies the state of the exempt offering of securities to the initial shareholders. Failure to file the Limited Offering Exemption Notice when required can result in civil and criminal penalties and rescission liability under California Corporations Code § 25503. Timely filing protects the California Professional Accountancy Corporation and its shareholders from these consequences.

Post-Formation Compliance: Ongoing Obligations

Forming the California Professional Accountancy Corporation is the beginning of a compliance program, not the end of one. Ongoing obligations include:

• Annual Statements of Information: Filed annually with the California Secretary of State. California Corporations Code § 13400 (see also California Corporations Code § 1502).
• Corporate minutes: Written minutes must be maintained for all meetings and resolutions of the board of directors and shareholders.
• Corporate records: All corporate records must be kept at the principal place of business.
• Professional license renewals: All shareholders must maintain active professional licenses and update board registration records as required.
• Municipal business licenses and permits: All applicable local business licenses and other permits required by law must be obtained and maintained.

Form Your California Professional Accountancy Corporation with San Diego Corporate Law

The formation of a California Professional Accountancy Corporation is a multi-step process governed by the Moscone-Knox Professional Corporation Act, profession-specific licensing requirements, federal tax law, and California securities law. Each step requires precision. Errors at any stage—whether in the Articles of Incorporation, the bylaws, the S election deadline, or the Limited Offering Exemption Notice—can result in consequences that are difficult and costly to correct.

San Diego Corporate Law provides experienced legal counsel to licensed professionals forming California Professional Accountancy Corporations. Contact San Diego Corporate Law to schedule a consultation with an experienced corporate attorney and begin the formation of your California Professional Accountancy Corporation today.

Frequently Asked Questions About Forming a California Professional Accountancy Corporation

Are accountants required to form a California Professional Accountancy Corporation in California?

To practice accountancy in corporate form under California law, accountants must use a California Professional Accountancy Corporation. To practice without a corporate form, solo accountants may be sole proprietorships and two or more accountants may organize California General Partnerships.

Can a California LLC or PLLC be used to render accounting services in California?

No. California Corporations Code § 17701.04(b) prohibits domestic and foreign LLCs and PLLCs from rendering accounting services as defined in California Corporations Code § 13401(a). California does not recognize professional limited liability companies (PLLCs). Licensed accountants must use a California Professional Accountancy Corporation to operate in corporate form.

Who can own shares in a California Professional Corporation?

Shares may only be issued to and held by licensed persons—individuals licensed to practice accountancy and other persons.

How long do licensed accountants have to file the S corporation election after forming a California Professional Corporation?

IRS Form 2553 must be filed within the timeframe prescribed by the Internal Revenue Code (2 months and 15 days from the date of incorporation) for the election to be effective from the date of incorporation. An experienced corporate attorney should manage this deadline to avoid the California Professional Accountancy Corporation being taxed as a personal service corporation.

What happens if the Limited Offering Exemption Notice is not filed for a California Professional Accountancy Corporation?

Failure to file the Limited Offering Exemption Notice with the California Department of Financial Protection and Innovation when required can result in civil and criminal penalties and rescission liability under California Corporations Code § 25503. An experienced corporate attorney should prepare and file this notice promptly after the shares are issued.

What is the filing fee for Articles of Incorporation for a California Professional Accountancy Corporation?

The filing fee for Articles of Incorporation with the California Secretary of State is $100. A certified copy of the Articles of Incorporation may be obtained for an additional $5.