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What You Need to Know About California Professional Corporations

Here in San Diego and all over the Golden State, professionals such as doctors, lawyers, accountants, court reporters, and others are permitted to form professional corporations pursuant to the Professional Corporation Act. See Cal. Corp. Code, §§ 13400-13410. We here at San Diego Corporate Law have helped professionals set up and properly maintain their corporations for over a decade. Here are a few things that you need to know about California professional corporations.

Method of Formation

Professional corporations are formed in the same manner as general stock corporations. That is, articles of incorporation are completed and filed with the California Secretary of State (along with the applicable fees). The primary difference is the specific, profession specific information which must be included under the corporations code, business and professions code, and the board or governing body of the specific profession that must be included in the corporate documents and differs from profession to profession.

Tax Treatment

There are two basic choices for tax treatment — C-corporation and S-corporation. The “default” for every new California corporation is to be treated as a C-corporation. This means that, for federal taxation, a federal tax return must be prepared and filed and corporate taxes must be paid. However, professional corporations can elect to be taxed as an S-corporation which is a pass-through type of corporation. All profits are “passed through” to the owners and taxed as personal income.

What Professions Must Use a Professional Corporation?

Basically, if your profession requires licensure and has some sort of governing body, likely, you must form a professional corporation for your business. Here is a brief list:

  • Lawyers
  • Healing arts professionals like doctors and physicians, optometrists, nurses, physician assistants, and more
  • Mental health professionals like psychiatrists, psychologists, marriage and family therapists, and clinical social workers
  • Dentists and dental hygienists
  • Accountants
  • Veterinarians
  • Pharmacists
  • Audiologists
  • Speech Language Pathologists
  • Midwives
  • Court reporters

Alternative Business Forms

Using a professional corporation to run your practice is essential. The two alternative business structures both have the same drawback: risk to your personal assets in the event of some liability or lawsuit. You could run your professional practice as a solo practitioner, but you and your family will be personally liable for any business obligation. Alternatively, you could form a partnership with others in your profession. But, again, the partners are personally liable for any debts and obligations of the partnership. Forming a professional corporation protects you and your family.

Professions Cannot be Mixed and Matched

Keep in mind that professional corporations must be owned and managed by professionals licensed in the same profession as the corporation (or otherwise allowed under the corporations code or business and professions code). There is no “mixing and matching” professions within a single professional corporation. As an example, a dentistry corporation can be owned and managed by dentists and also by dental hygienists. However, an accountant or a lawyer cannot be a part-owner of a professional dental corporation. The rules can be confusing, so it is important to obtain the advice and counsel of an experienced San Diego corporate attorney to assist in forming your professional corporation.

Current Licensure is Needed

Along the same lines, licensure in good standing is needed by all the owners and those who are on the board of directors. Thus, if there is a loss of licensure or a retirement, then a restructuring of your professional corporation must be undertaken.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the past four years. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters. To schedule a consultation, contact Mr. Leonard via email or call at (858) 483-9200. San Diego Corporate Law proudly provides legal services to business owners in San Diego and the surrounding communities. Like us on Facebook.

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