Transitioning from a California General Stock Corporation, such as a California Corporation or California S-Corp, to a Professional Nursing Corporation in California requires careful planning and adherence to specific legal requirements.

Converting from a California General Stock Corporation to a California Professional Nursing Corporation is likely required because nurses and nurse practitioners in California may not render professional services in a California General Stock Corporation or California LLC (nor may a foreign limited liability company or non-professional or other corporation).

This Article outlines the five steps to convert a California General Stock Corporation to a California Professional Nursing Corporation. Following these essential steps, or allowing the experienced corporate attorneys at San Diego Corporate Law to handle the conversion, will seamlessly convert an existing California General Stock Corporation into a California Professional Nursing Corporation specifically designed for licensed nurses and nurse practitioners rendering professional services with a California Professional Corporation, ensuring compliance with California law, including the California Corporations Code, the Moscone-Knox Professional Corporations Act, the California Business and Professions Code as well as the rules and regulations of the California Board of Registered Nursing for rendering professional nursing services.

Executive Summary: Putting the Conclusion First for Busy Nurses and Nurse Practitioners

Whether you found an article such as this one about California law prohibiting California General Stock Corporations from rendering nursing services, independently discovered that the California Corporations Code, the California Business and Professions Code, and the California Board of Registered Nursing prohibit the use of a California General Stock Corporation for nursing practices, or you have an existing California General Stock Corporation you no longer need and want to convert it for use in your nursing practice, the experienced attorneys at San Diego Corporate Law can assist with conversion of your California General Stock Corporation into a California Professional Nursing Corporation to separate personal and corporate assets as well as operate in the most tax efficient form possible. Contact us today to schedule a consultation to discuss the details of your conversion.

Step 1: Obtain Shareholder and Board Approval to Convert from a California General Stock Corporation to a California Professional Nursing Corporation

Obtaining the consent of the Shareholder(s) and the Board of Directors of the California General Stock Corporation is the first step in the conversion process to a California Professional Nursing Corporation. This approval is necessary because the conversion process involves amending and restating the Articles of Incorporation to reflect the change in corporate structure and either amending or amending and restating the corporate Bylaws. It is also common for the name of a California Corporation or California S-Corp to change when it is converted to a California Professional Nursing Corporation, which also requires the approval of the shareholder(s) and the Board of Directors.

Shareholder(s) Meeting

Prior to the Board of Directors meeting, a meeting of the Shareholders should be convened. The primary purpose of this meeting is approving the proposed Amended and Restated Articles of Incorporation and corporate Bylaws that are compliant with the Moscone-Knox Professional Corporation Act and California Business and Professions Code for the nursing practice under the resulting California Professional Nursing Corporation.

The Shareholder(s) may also discuss or make other decisions at this meeting, such as conducting an election of members of the Board of Directors if any current members of the Board of Directors do not have the appropriate licenses to remain members of the Board of Directors after conversion to a California Professional Nursing Corporation, and any other matters necessary for conversion from a California General Stock Corporation to a California Professional Nursing Corporation.

The Shareholder(s) will also ratify the actions to be taken on behalf of the California Corporation or California S-Corp during the conversion to a California Professional Nursing Corporation, and also approve certain decisions to be confirmed by the Board of Directors during their meeting that follows, thus providing an additional layer of validation for the decisions to be made by the Board of Directors. Maintaining an accurate record of this meeting of the Shareholder(s) is of utmost importance for corporate compliance and historical reference.

Given the importance of these decisions, ensuring meticulously documented minutes of the meeting are prepared and subsequently filed within the corporate records.

Board of Directors Meeting

The Board of Directors meeting is critical for the process of converting a California General Stock Corporation to a California Professional Nursing Corporation. The primary objectives of this meeting include approving the Amended and Restated Articles of Incorporation and amended or restated corporate Bylaws to be used by the resulting California Professional Nursing Corporation.

The Board of Directors may also discuss or make other decisions at this meeting, such as conducting an election of corporate officers (such as the President or CEO, Secretary, and Treasurer or Chief Financial Officer) if any current officers do not have the appropriate licenses to remain Officers after conversion to a California Professional Nursing Corporation, and the resolution of any other matters necessary for conversion from a California General Stock Corporation to a California Professional Nursing Corporation.

During this meeting, the Board of Directors may also discuss other corporate matters that have not been previously established, such as setting the fiscal year of the California Professional Nursing Corporation, the designation of a business bank account or business bank accounts, establishing a principal place of business, or the authorization of the issuance of shares to the shareholders, to name a few.

Given the importance of these decisions, ensuring meticulously documented minutes of the meeting are prepared and subsequently filed within the corporate records.

Written Consents in Lieu of Meetings

California corporate law allows for the drafting and signing of written consents by the Board of Directors and Shareholder(s) as an alternative to holding formal meetings if permitted in the Bylaws. The use of written consents in lieu of meetings can be particularly advantageous for streamlining decisions when scheduling conflicts or logistical challenges arise, and they also make sense when there is only one Shareholder and only one member of the Board of Directors.

These written consents must encompass all decisions ratified as if a meeting had been held, adhering to the same standards of detail and formality. For legal validity, consent documents must be signed by all members of the Board of Directors or Shareholder(s), respectively, and filed within the corporate records in the same manner meeting minutes should be filed in the corporate records.

Legal Compliance and Documentation

Whether opting for physical meetings or written consents, compliance with the California Corporations Code is paramount. This includes adhering to notice requirements for meetings, achieving the necessary quorums, and ensuring proper documentation and filing of minutes or consents. Additionally, these early governance activities should be executed in harmony with the stipulations contained within the existing Bylaws of the California Corporation or California S-Corp and the overarching legal framework governing California Corporations.

The initial meetings of the Board of Directors and Shareholder(s), or the drafting and signing of written consents in lieu thereof, are foundational elements in the establishment of the governance structure of a California Professional Nursing Corporation. These steps not only comply with legal mandates, but also solidify the operational and managerial foundations necessary for the newly converted California Professional Nursing Corporation to thrive.

Step 2: Draft and File Amended and Restated Articles of Incorporation to Convert a California General Stock Corporation to a California Professional Nursing Corporation

Drafting and filing Amended and Restated Articles of Incorporation is a pivotal step in the process of converting a California General Stock Corporation into a California Professional Nursing Corporation. This legal document formally transitions the California General Stock Corporation to a California Professional Nursing Corporation under California law and establishes the foundation of the legal structure of the California Professional Nursing Corporation after the conversion has occurred.

Preparation of Amended and Restated Articles of Incorporation for a California Professional Nursing Corporation

The Amended and Restated Articles of Incorporation to convert a California General Stock Corporation into a California Professional Nursing Corporation must include specific information as required by the California Corporations Code.

This information includes the name of the California General Stock Corporation that is converting and the name of the California Professional Nursing Corporation once the conversion is compete, which name may or may not need to be changed as a part of the conversion process.

The purpose clause of the California General Stock Corporation reads:

“The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.”

The purpose clause included in the Amended and Restated Articles of Incorporation for converting to a California Professional Nursing Corporation must read as follows:

“The purpose of the corporation is to engage in the profession of nursing and any other lawful activities (other than the banking or trust company business) not prohibited to a corporation engaging in such profession by applicable laws and regulations. This corporation is a professional corporation within the meaning of California Corporations Code section 13400 et seq. “

The number of shares of stock, and information about the classes and series of those shares of stock, must also be specified in the Amended and Restated Articles of Incorporation, and this capitalization information may be the same or different from the California General Stock Corporation and the California Professional Nursing Corporation into which it will be converted.

It is important to ensure accuracy and adherence to legal requirements when drafting the Amended and Restated Articles of Incorporation, as they form the legal backbone of the California Professional Nursing Corporation. Attention to detail in this step can prevent potential legal and operational issues down the line.

Filing Amended and Restated Articles of Incorporation with the California Secretary of State

Once the Amended and Restated Articles of Incorporation have been prepared, the next step involves filing them with the California Secretary of State. This filing officially converts the California General Stock Corporation into a California Professional Nursing Corporation with the State of California and is accompanied by a filing fee of $30 at the time of this writing, plus a $5 Certification Fee if a certified copy of the Amended and Restated Articles of Incorporation are requested. A document examiner in the office of the California Secretary of State will review the submitted Articles of Incorporation Conversion for compliance with California laws before approving the conversion.

Legal Considerations and Compliance for Amended and Restated Articles of Incorporation for a California Professional Nursing Corporation

Throughout the drafting and filing process, adherence to California laws and regulations is non-negotiable. Ensuring legal compliance not only legitimizes the conversion process and safeguards the status as a California Professional Nursing Corporation, but also ensures that the drafted and filed Amended and Restated Articles of Incorporation are accepted and not rejected by the California Secretary of State.

It is therefore advisable to seek the expertise of an experienced corporate attorney to guide the drafting, review, and filing of the Amended and Restated Articles of Incorporation, as competent counsel may provide invaluable insights into the nuances of California corporate law, ensuring the conversion process is executed correctly and efficiently.

Step 3: Draft Bylaws for a California Professional Nursing Corporation Compliant with the Moscone-Knox Professional Corporations Act

The Bylaws of a California Professional Nursing Corporation provide the governance structure and every California Professional Nursing Corporation is required to have Bylaws. Bylaws serve as the internal manual governing the operations of a California Professional Nursing Corporation, detailing the rights, responsibilities, and obligations of the directors, officers, and shareholders.

The California General Stock Corporation may have adopted corporate Bylaws prior to conversion, however, in accordance with the Moscone-Knox Professional Corporation Act, which governs the formation and operation of professional corporations in California, Bylaws must adhere to specific California requirements specific to the practice of nursing as set forth in both the California Corporations Code and the California Business and Professions Code.

Since the corporate Bylaws of a California Professional Nursing Corporation must contain specific information unique to the profession designated by the California Professional Nursing Corporation, the corporate Bylaws of the California General Stock Corporation should either be amended or completely replaced by corporate Bylaws drafted for a California Professional Nursing Corporation.

Key Elements of the Bylaws of California Professional Nursing Corporations

Bylaws should encompass distinct provisions that align with the Moscone-Knox Professional Corporation Act where applicable, the California Corporations Code where the Moscone-Knox Professional Corporation Act is silent, and the California Business and Professions Code applicable the practice of nursing specified for the California Professional Nursing Corporation. These provisions include:

·         Organizational Structure: Detailed description of the governance structure of the California Professional Nursing Corporation, including the size of the board of directors, the tenure of directors, and the scope of authority of the officers.

·         Shareholder Agreements: Conditions under which shares may be issued, transferred, or repurchased, especially considering the restrictions on share ownership specific to the profession of nursing using the California Professional Nursing Corporation, which requires shareholders to be registered nurses and/or nurse practitioners providing the same professional services and other licensed professionals such as licensed clinical social workers and licensed professional clinical counselors.

·         Meetings and Voting: Procedures for conducting annual meetings, special meetings, and the mechanism for voting, including the use of proxies.

·         Professional Compliance: Specific clauses ensuring that all practicing nurses and nurse practitioners within the corporation hold valid and current licenses and comply with the ethical standards mandated by the California Board of Registered Nursing.

Compliance and Customization of California Professional Nursing Corporation Bylaws

While drafting Bylaws, it is essential to ensure that they not only comply with legal requirements but also reflect the specific operational dynamics of the California Professional Nursing Corporation. Customization of Bylaws allows for creating a corporate governance framework that is tailored to the mission, values, and professional practices of the California Professional Nursing Corporation is possible within the restraints of the California Corporations Code, which proscribes many of the details which must be included in the Bylaws of a California Professional Nursing Corporation.

Adoption of California Professional Nursing Corporation Bylaws

The Bylaws must be formally adopted by the Board of Directors of the California Professional Nursing Corporation. This adoption is a significant step, as it legally enforces the Bylaws as the governing document of the operations of the California Professional Nursing Corporation.

Legal Considerations and Compliance for Corporate Bylaws of a California Professional Nursing Corporation

In conclusion, drafting corporate Bylaws in compliance with the Moscone-Knox Professional Corporation Act, the California Corporations Code, and the California Business and Professions Code is a fundamental step in converting a California General Stock Corporation into a California Professional Nursing Corporation.

Bylaws found online or from sources other than California corporate attorneys should be reviewed by experienced corporate counsel to ensure they are compliant with the Moscone-Knox Professional Corporations Act, the California Corporations Code, and the California Business and Professions Code, as often Bylaws from such sources are not compliant (and sometimes are just retitled versions of Bylaws for General Stock California Corporations!).

Ensuring the legal compliance of the Bylaws of a California Professional Nursing Corporation requires meticulous attention to detail, a deep understanding of legal requirements, and a nuanced approach to incorporating the requirements of all the applicable California laws into the Bylaws of the California Professional Nursing Corporation.

Step 4: Ensure All Required Filings and Corporate Documents Have Been Completed

Draft and File a Statement of Information for the California Professional Nursing Corporation

After successfully converting a California General Stock Corporation into a California Professional Nursing Corporation, the next step should be to draft and file a Statement of Information with the California Secretary of State if any of the reported information changed during the Conversion.

The Statement of Information is a required legal document essential for the public disclosure of the fundamental details of the California Professional Nursing Corporation, including the name of the corporation, the identities of the members of the board of directors and officers, the principal business address and mailing address of the California Professional Nursing Corporation, and the identity of its Registered Agent for Service of Process.

The disclosures made on the Statement of Information ensure corporate transparency and compliance with California laws and regulations requiring such disclosures.

Filing Requirements for a Statement of Information

A Statement of Information for a California Professional Nursing Corporation must be filed within 90 days of filing Articles of Incorporation with the California Secretary of State. Thereafter, a Statement of Information it is required to be filed annually, but may be filed when reported information changes, and failure to timely file the initial or subsequent annual Statement of Information can result in financial penalties and could ultimately lead to the suspension of the California Professional Nursing Corporation. Therefore, it is paramount for the corporation to adhere to these filing deadlines to maintain good standing and ensure uninterrupted operations.

Procedure for Filing a Statement of Information

The process for filing the Statement of Information can be completed online, by mail, or in person. For efficiency and accessibility, the California Secretary of State offers an online filing system for California Professional Nursing Corporations to submit their initial and annual Statement of Information filings electronically. If preferred, the document can also be downloaded, completed, and mailed or delivered to the Secretary of State. Regardless of the method chosen for filing, it is important to ensure that the information provided is accurate and current to avoid potential legal complications.

Inform Governmental Agencies and Taxing Authorities of the Changed Information

After the conversion of a California General Stock Corporation into a California Professional Nursing Corporation, it may be necessary to notify all relevant governmental agencies and taxing authorities about the change if certain information was changed in the conversion process. This step is crucial for ensuring that the newly converted entity adheres to the appropriate federal and state regulatory and tax obligations applicable to California Professional Nursing Corporations.

Notification of Change Following Conversion of a California General Stock Corporation into a California Professional Nursing Corporation

While the California Franchise Tax Board will automatically receive a notice of any name change occurring during the conversion of a California General Stock Corporation into a California Professional Nursing Corporation, the IRS does not receive any such notice from the State of California, nor do any taxing authorities receive notice of other changes, such as changes of address. Therefore, it is imperative to promptly notify the Internal Revenue Service, California Franchise Tax Board, and other governmental agencies and taxing authorities of the changes which occurred during the conversion so correct information about the California Professional Nursing Corporation, such as its S Corporation Election, S Corporation status, and information associated with its federal tax identification number may be maintained by these agencies.

Business Licenses and Permits

The conversion of a California General Stock Corporation to a California Professional Nursing Corporation may necessitate the updating or reissuance of existing business licenses and permits. Contact local and state licensing agencies to update the business entity information on all operational licenses and permits. This ensures the continued legal operation of the professional services under the newly converted corporate entity.

Draft and File the California Department of Financial Protection and Innovation Limited Offering Exemption Notice

The most widely used federal securities exemption from registration for original issuances of shares of stock to the founders of a California Professional Nursing Corporation is provided by Section 4(a)(2) of the Securities Act. This section exempts transactions by an issuer not involving any public offering. California Professional Nursing Corporations and shareholders must meet specific criteria to qualify.

In addition to federal securities law compliance, California Professional Nursing Corporations should also be aware of state-level compliance, often referred to as “blue sky” laws, which may impose additional requirements even when a federal exemption is utilized. It is highly recommended to engage experienced legal counsel to ensure proper adherence to both federal and state securities laws when using exemptions for the issuance of stock.

For California Professional Nursing Corporations, the most common exemption from qualification (the California term for registration) when issuing shares is California Corporations Code Section 25102(f). This California exemption allows the issuance of shares of stock to a limited number of persons (35 or fewer) in California, provided that all of the purchasers have a pre-existing relationship with the California Professional Nursing Corporation or its shareholders and are buying for investment purposes without the intention of resale.

What is the Limited Offering Exemption Notice?

By issuing securities (in this case, shares of stock of a California General Stock Corporation or California Professional Nursing Corporation) in California, these securities must either be exempted or qualified. You can rely on the limited offering exemption provided by California Corporations Code Section 25102(f) if all of the requirements are met.

However, to claim this exemption, a Limited Offering Exemption Notice (LOEN) must be filed with the California Department of Financial Protection and Innovation within fifteen (15) calendar days after the first sale of a security in California or within fifteen (15) business days after discovery of the failure to file the notice or after demand by the commissioner, whichever occurs first. The notice may be filed in advance of the first sale of a security. The latter portion of the timing requirement, allowing for filing within fifteen (15) days of discovering a failure to file, has allowed many nurses and nurse practitioners to find securities law compliance after forming a business entity online or with a non-attorney.

How is a Limited Offering Exemption Notice Filed?

The Limited Offering Exemption Notice must be filed online with the California Department of Financial Protection and Innovation together with the required filing fee.

Draft and File FinCEN Beneficial Ownership Information Report to Report any Changed Information

Following the conversion of a California General Stock Corporation into a California Professional Nursing Corporation, an initial or amended FinCEN Beneficial Ownership Information Report filing may be required.

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, mandates this reporting to combat financial crimes like money laundering and terrorism financing. The Beneficial Ownership Information Report plays a crucial role in providing transparency about the individuals who own or control significant aspects of corporate entities such as California Professional Nursing Corporations. As the FinCEN Beneficial Ownership Information Reporting requirements are new at the time of this writing, you may wish to read more about the requirements in one of these articles:

What is Beneficial Ownership Information Reporting?

Exemptions from Beneficial Ownership Information Reporting

What Specific Information Does a Company Need to Report for FinCEN Beneficial Ownership Information Reporting?

How to File Beneficial Ownership Information Report

How to Fix Inaccuracies or Make Changes to a Beneficial Ownership Information Report

The failure to comply with the FinCEN Beneficial Ownership Information Reporting requirements can lead to civil penalties of $500 per day of non-compliance and criminal penalties of up to $10,000 and two-years imprisonment.

Understanding Beneficial Ownership Reporting Requirements

The FinCEN reporting requirements focus on identifying and verifying the beneficial owners of legal entities. A beneficial owner is defined as any individual who, directly or indirectly, holds equity interests in the California Professional Nursing Corporation or who exercises significant control over the entity. This includes individuals who have the authority to make significant decisions for the entity, such as Shareholders, Officers, and members of the Board of Directors, but may also include professional employees and other parties with influence or control whose names may not appear in the records of the California Professional Nursing Corporation.

Requirement to Report Changes within Thirty (30) Days

A critical aspect of maintaining compliance with the FinCEN Beneficial Ownership Information Reporting regulations is the requirement to report any changes to beneficial ownership information within thirty (30) days of such changes occurring. This includes reportable changes resulting from the conversion of a California General Stock Corporation into a California Professional Nursing Corporation.

Legal and Professional Assistance

Given the complex nature of the FinCEN Beneficial Ownership Information Reporting requirements, and the potential consequences of non-compliance, it is advisable for business entities undergoing conversion to seek the assistance of legal professionals knowledgeable about the reporting requirements for guidance on accurately identifying beneficial owners, completing the reporting, and navigating the filing process efficiently. By accurately reporting beneficial ownership information and promptly updating this information within thirty (30) days of any changes, the California Professional Nursing Corporation secures its legal and operational standing.

Step 5: Ensure All Changed Information is Properly Reported

The final step after a California General Stock Corporation has been successfully converted to a California Professional Nursing Corporation is to communicate any reportable changes to all vendors, clients or patients, banks and other financial institutions, insurance companies, payroll companies, property management companies for leased premises, and any others who interact with the business on a professional basis who rely upon the previous information of the California General Stock Corporation which might have been changed as a part of the conversion into a California Professional Nursing Corporation. These notifications not only serve as a formal announcement, but also ensure the continuity of business operations without legal or financial disruptions while securing the personal liability protection of the Shareholder(s).