In the world of business formation, the term Licensed Professional Clinical Counselor PLLC, or Licensed Professional Clinical Counselor Professional Limited Liability Company, refers to a special legal business entity that is designed for licensed professional clinical counselors for rendering professional services. However, navigating the specifics of using a Licensed Professional Clinical Counselor PLLC can be a challenge, particularly as business structure regulations vary from state to state. This article discusses the permissibility of utilizing Licensed Professional Clinical Counselor PLLCs in California, and the alternatives for licensed professional clinical counselor practice owners.

Spoiler Alert: Licensed Professional Clinical Counseling Cannot Be Practiced Using Any LLC in California

If you are already practicing licensed professional clinical counseling in California as a California LLC or an LLC or PLLC from a state other than California, you should also read this article which includes information about how to get into compliance with California law for your licensed professional clinical counseling practice.

The California Revised Uniform Limited Liability Company Act of the California Corporations Code Prohibits the Use of LLCs for the Provision of Licensed Professional Clinical Counselor Services by Licensed Professional Clinical Counselors in California

Use of a California LLC to Render Licensed Professional Clinical Counselor Services in California

Neither a foreign nor a California limited liability company (LLC) may be used to render licensed professional clinical counseling services in California. This comes as a surprise to many licensed professional clinical counselors, as Licensed Professional Clinical Counselor Professional Limited Liability Companies are commonly used to render licensed professional clinical counseling services in other states. However, California Corporations Code Section 17701.04(e) answers the question clearly regarding the use of a foreign or California LLC as a business entity for licensed professional clinical counselors in California:

“Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.”

Thus, licensed professional clinical counselors may not use or form limited liability companies for the provision of licensed professional clinical counseling services in California.

Use of a California PLLC to Render Licensed Professional Clinical Counselor Services in California

Based upon California Corporations Code Section 17701.04(e), which prohibits the use of a foreign or California LLC to render licensed professional clinical counseling services, because nothing in the California Corporations Code differentiates the idea of a California Licensed Professional Clinical Counselor PLLC from the California LLC, there is nothing in California law regarding LLC formation for the provision of licensed professional clinical counseling services, and nothing establishes a California Licensed Professional Clinical Counselor PLLC as a business entity that may be formed under California law.

In short, there is no California Licensed Professional Clinical Counselor PLLC as the law currently stands at the time of this writing in 2024, and thus licensed professional clinical counselors are unable to form a California Licensed Professional Clinical Counselor PLLC for their licensed professional clinical counseling services. This is a significant departure from the norm in many other states, where Licensed Professional Clinical Counselor PLLCs are a commonly used business entities for licensed professional clinical counselors.

Use of a Foreign Licensed Professional Clinical Counselor PLLC to Render Licensed Professional Clinical Counselor Services in California

Based upon California Corporations Code Section 17701.04(e), which prohibits the use of a foreign or California LLC by licensed professional clinical counselors to render licensed professional clinical counseling services, and because the California Corporations Code does not differentiate between a between a foreign LLC or foreign PLLC for purposes of California Corporations Code Section 17701.04(e), neither a foreign LLC nor a foreign PLLC may be used by licensed professional clinical counselors to render licensed professional clinical counseling services in California.

Professional practices that are structured as Licensed Professional Clinical Counselor PLLCs in other states need to exercise extreme caution when offering licensed professional clinical counseling services in California. The prohibition set forth in California Corporations Code Section 17701.04(e) means that out-of-state licensed professional clinical counseling practices operating as Licensed Professional Clinical Counselor PLLCs in their home state may encounter legal restrictions if they wish to offer their licensed professional clinical counseling services in California. Therefore, the licensed professional clinical counselors practicing under these Licensed Professional Clinical Counselor PLLCs in their home states must not use their Licensed Professional Clinical Counselor PLLCs when rendering licensed professional clinical counseling services in California and must do so either as a California Sole Proprietorship or California General Partnership by default, or by establishing a California Licensed Professional Clinical Counselor Corporation, as will be discussed below.

What Business Structure Options Do Licensed Professional Clinical Counselors Have in California?

As California does not allow the use of California LLCs, foreign LLCs, or foreign Licensed Professional Clinical Counselor PLLCs (and there is no such thing as a California PLLC!) for the provision of licensed professional clinical counseling services in the State of California, California licensed professional clinical counselors seeking to practice licensed professional clinical counseling in California must explore choose one of the permissible business structures, as discussed below.

Selecting the best permissible business structure option will depend on the specific licensed professional clinical counseling services to be offered and the regulations governing those licensed professional clinical counseling services. In the following subsections, we will introduce the various business entities that are permitted to render licensed professional clinical counseling services in California, including Sole Proprietorships, General Partnerships, and Licensed Professional Clinical Counselor Corporations, each of which comes with its own set of advantages and limitations.

A California Licensed Professional Clinical Counselor May Practice as a Sole Proprietorship in California

A Sole Proprietorship is a straightforward and uncomplicated business structure that may be utilized by licensed professional clinical counselors in California. In a Sole Proprietorship, the individual licensed professional clinical counselor is the sole owner and operator of the licensed professional clinical counseling practice.

Liability Protection for Licensed Professional Clinical Counselor Sole Proprietors in California

Sole Proprietorships do not provide their owners with liability protection in California. In this type of business structure, the licensed professional clinical counselor is personally responsible for all business debts, liabilities, obligations, and all legal judgments against the licensed professional clinical counseling practice. This means that if the licensed professional clinical counseling practice incurs a debt or is sued, the personal assets of the licensed professional clinical counselor, such as their home, car, and personal bank accounts, can be used to settle these obligations.

The lack of liability protection is a significant disadvantage of operating a licensed professional clinical counseling practice as a Sole Proprietorship and is a critical factor that a licensed professional clinical counselor should consider when deciding on the most appropriate business structure for their licensed professional clinical counseling practice in California.

Taxation of Licensed Professional Clinical Counselor Sole Proprietors in California

In California, Licensed Professional Clinical Counselor Sole Proprietorships are subject to pass-through taxation, meaning the business itself is not separately taxed. Instead, the income or loss of the business is passed through to the licensed professional clinical counselor. The licensed professional clinical counselor reports business income and expenses on Schedule C of their personal federal income tax return (Form 1040). The net profit or loss is then reported on the personal tax return of the licensed professional clinical counselor and taxed at individual income tax rates.

In addition to income taxes, a licensed professional clinical counselor practicing as a Sole Proprietorship in California is also subject to self-employment taxes, which cover Social Security and Medicare taxes. At the time of this writing in 2024, this is calculated on Schedule SE of the federal tax return at a rate of 15.3% on the first $168,600 of net income and 2.9% on all net profit in excess of the first $168,600.

At the state level, California has one of the highest state income tax rates in the country, and these rates apply to business income that passes through to the personal tax returns of the licensed professional clinical counselor practicing as a Sole Proprietorship.

When Should a California Licensed Professional Clinical Counselor Practice as a Sole Proprietorship in California?

A California licensed professional clinical counselor should only consider practicing as a Sole Proprietorship in California when they are starting their licensed professional clinical counseling practice and have limited financial resources, will not have employees, do not expect to grow their practice beyond just a few patients, and have substantial insurance coverage for the liabilities and risks associated with their licensed professional clinical counseling practice.

However, as the licensed professional clinical counseling practice grows, the licensed professional clinical counselor should reconsider the use of a Sole Proprietorship for their licensed professional clinical counseling practice as revenue increases, before hiring employees, or as professional liabilities increase. Upon the first to occur of increasing revenue, hiring employees, or increases in professional liability, it will be advantageous for the licensed professional clinical counselor to explore other business structures that offer tax benefits and liability protection.

Two or More California Licensed Professional Clinical Counselors Professionals May Practice as a General Partnership in California

A California General Partnership used for a licensed professional clinical counseling practice is a business entity in which two or more licensed professional clinical counselors join together to provide licensed professional clinical counseling services in California. In such a setup, all licensed professional clinical counselor partners share equal rights and responsibilities in managing the business of the licensed professional clinical counseling practice.

Liability Protection for Licensed Professional Clinical Counselor General Partners in a California General Partnership

General Partnerships in California do not provide licensed professional clinical counselor partners with liability protection. This means each licensed professional clinical counselor partner has joint and several personal liability for all business debts, liabilities, obligations, and all legal judgments against the licensed professional clinical counseling practice, including those incurred by other licensed professional clinical counselor partners which includes acts of malpractice by the other licensed professional clinical counselor partners. If the California General Partnership providing licensed professional clinical counseling services is sued or incurs debt, the personal assets of each licensed professional clinical counselor partner, such as their home, vehicles, and personal savings, could be at risk, even if they are not found personally at fault for incurring the debt or committing the act of malpractice.

This lack of liability protection is a considerable drawback for California General Partnerships rendering licensed professional clinical counseling services and something California licensed professional clinical counselors should seriously factor into their decision when considering a California General Partnership for their licensed professional clinical counseling practice in California.

Taxation of General Partnership Licensed Professional Clinical Counselor Practices in California

In California, licensed professional clinical counseling practices structured as General Partnerships are taxed under the pass-through taxation system. This means the California General Partnership itself does not pay income taxes. Instead, the share of the profits or losses of the California General Partnership allocated to each licensed professional clinical counselor partner passes through to their personal income tax return. The individual licensed professional clinical counselor partners are responsible for paying federal and state income taxes on their allocated share of the profits of the California General Partnership at their individual income tax rates.

Each licensed professional clinical counselor partner is also required to pay self-employment taxes, which are Social Security and Medicare taxes for self-employed individuals. At the time of this writing in 2024, this is calculated on Schedule SE of the federal tax return at a rate of 15.3% on the first $168,600 of net income and 2.9% on all net profit in excess of the first $168,600.

California General Partnership earnings are also subject to the California state income tax. The state has a progressive income tax system with rates ranging from 1% to 13.3%, depending on the income of the taxpayer. These rates apply to the allocated share of the California General Partnership income allocated to each licensed professional clinical counselor partner and passed through to their personal tax returns.

When Should California Licensed Professional Clinical Counselors Practice as a General Partnership in California?

Based upon the unlimited liability and tax structure of a California General Partnership, a California General Partnership should probably not be considered by licensed professional clinical counselors practicing licensed professional clinical counseling in California, as there are superior options for a professional practice in California that provide more personal liability protection than a California General Partnership for licensed professional clinical counseling practices.

One or More California Licensed Professional Clinical Counselors May Practice Licensed Professional Clinical Counseling as a California Licensed Professional Clinical Counselor Corporation in California

California Licensed Professional Clinical Counselor Corporations are a specialized form of California professional corporation pursuant to the California Business and Professions Code designed specifically for licensed professional clinical counselors who seek personal liability protection and tax benefits for their licensed professional clinical counseling practice. A California Licensed Professional Clinical Counselor Corporation is a separate legal entity distinct from its licensed professional clinical counselors owner(s) and permitted non-licensed professional clinical counselor owner(s) who are other licensed professionals such as licensed clinical social workers, licensed marriage and family therapists, and other mental health professionals , referred to collectively as licensed shareholders, which distinguishes it from a California Sole Proprietorship (which is an individual licensed professional clinical counselor personally practicing licensed professional clinical counseling) or a California General Partnership (which is a group of licensed professional clinical counselors practicing licensed professional clinical counseling together).

Liability Protection from a Licensed Professional Clinical Counselor Corporation in California

In a California Licensed Professional Clinical Counselor Corporation, the personal assets of the licensed shareholders are generally protected from business debts, liabilities, obligations, and legal judgments against the California Licensed Professional Clinical Counselor Corporation. This means that in most instances, if the California Licensed Professional Clinical Counselor Corporation is sued or incurs debt, the personal assets of the licensed professional clinical counselor owner(s) and other licensed shareholders (such as their home, vehicles, and personal savings) are shielded from creditors.

It is essential to note that this liability protection does not extend to professional malpractice claims against a licensed professional clinical counselor. The personal asset protection applies only to debts and obligations incurred by the California Licensed Professional Clinical Counselor Corporation, not to the individual actions of a licensed professional clinical counselor. However, when two or more licensed professional clinical counselors are practicing licensed professional clinical counseling in a California Licensed Professional Clinical Counselor Corporation, a malpractice claim against one licensed professional clinical counselor is not a malpractice claim against all the other licensed professional clinical counselors and other licensed shareholders, which is a significant increase in personal liability protection for professional malpractice compared to a California General Partnership.

While the use of a California Licensed Professional Clinical Counselor Corporation provides liability protection, it does not eliminate the requirement for individual professionals to maintain adequate malpractice insurance coverage or for the California Licensed Professional Clinical Counselor Corporation to otherwise secure liability insurance for indemnification of its liabilities.

Taxation of Licensed Professional Clinical Counselor Corporations in California

Licensed Professional Clinical Counselor Corporations in California can opt to be taxed as personal service corporations subject to double taxation or S Corporations, which alters the tax landscape for these entities. As the vast majority of California Licensed Professional Clinical Counselor Corporations elect S Corporation taxation, this article will focus on S Corporation taxation of California Licensed Professional Clinical Counselor Corporations.

With S Corporation status, the California Licensed Professional Clinical Counselor Corporation itself does not pay income tax. Instead, the income and losses of the California Licensed Professional Clinical Counselor Corporation pass through to the personal income tax returns of the licensed shareholders.

To qualify for S Corporation status, the California Licensed Professional Clinical Counselor Corporation must meet certain requirements including having no more than 100 shareholders, all of whom must be U.S. citizens or residents, and having only one class of stock.

One of the key advantages of S Corporation status for a California Licensed Professional Clinical Counselor Corporation lies in the area of self-employment taxes. Salaries and wages paid to licensed shareholder-employees are subject to payroll taxes (Social Security and Medicare). However, any additional profits distributed to licensed shareholders are not subject to either payroll taxes or self-employment taxes. This can result in significant tax savings.

In terms of state taxes, California taxes S Corporations at a rate of 1.5% of their net income, with a minimum tax of $800 paid annually to the California Franchise Tax Board. Licensed shareholders in a California Licensed Professional Clinical Counselor Corporation taxed as an S Corporation are also required to pay state income tax on their allocated share of the income of the California Licensed Professional Clinical Counselor Corporation.

When Should California Licensed Professional Clinical Counselors Practice Using a Licensed Professional Clinical Counselor Corporation in California?

A California licensed professional clinical counselor should consider practicing as a Licensed Professional Clinical Counselor Corporation in California when seeking personal liability protection and tax benefits for their licensed professional clinical counseling practice. This structure is particularly advantageous if the licensed professional clinical counselor wishes to shield their personal assets from business debts, liabilities, and obligations while also shielding themselves from legal judgments against the California Licensed Professional Clinical Counselor Corporation, with the exception of individual professional malpractice claims against the licensed professional clinical counselor personally.

If the licensed professional clinical counselor can meet the requirements necessary to qualify for S Corporation status, they can enjoy significant tax advantages. This includes the potential for tax savings through the having no self-employment tax liability on profits distributed to licensed shareholders, and only payroll tax liabilities on a reasonable salary paid to them as an employee of the California Licensed Professional Clinical Counselor Corporation.

Based upon the availability of both limited liability and tax benefits for the licensed professional clinical counselor, the California Licensed Professional Clinical Counselor Corporation should be the go-to business entity for California licensed professional clinical counselors.

Secure Your Future with Legal Services from Experts in California Professional Business Structures: Let San Diego Corporate Law Guide Your Business Structure Selection

Choosing the right business structure for your licensed professional clinical counseling practice in California is a critical step for every California licensed professional clinical counselor. It can significantly influence your tax obligations, personal liability, and the overall success of your licensed professional clinical counseling practice. At San Diego Corporate Law, our experienced legal team is well-versed in California business laws and can help you navigate the complexities of forming California professional corporations and business license applications for private practice, independently contracting professional service, or to otherwise render services as a licensed professional clinical counselor. Whether you are considering a California Licensed Professional Clinical Counselor Corporation or other structure for your licensed professional clinical counseling practice, we can provide the guidance necessary to make an informed decision. Contact us today to schedule a consultation and ensure your licensed professional clinical counseling practice starts in California on solid legal footing.