Navigating the complexities of business structures can be a significant challenge, especially in a state with regulations as specific as California. For licensed professionals, understanding the right way to incorporate is crucial. The California Professional Corporation offers a unique structure designed to meet the legal and professional requirements for these specific fields. However, the path to establishing and maintaining a California Professional Corporation is lined with questions.

This article answers some of the most frequently asked questions about California Professional Corporations. From what a California Professional Corporation is, who can form one, the benefits it offers, and the specific rules that govern its operation under California law. By understanding these key details, California professionals can make an informed decision about whether a California Professional Corporation is the right choice for a professional practice and ensure compliance with the California Corporations Code and California Business and Professions Code.

What is a California Professional Corporation?

A California Professional Corporation is a special type of business entity created for licensed professionals who provide state-licensed professional services. Under California law, these licensed professionals are often prohibited from forming a standard corporation, such as a California Corporation or California S-Corp, or a California Limited Liability Company (California LLC) for their practice. Instead, they must form a California Professional Corporation if they wish to practice in corporate form.

The primary purpose of a California Professional Corporation is to allow professionals to gain the liability protections and tax advantages of a corporate structure while still being held personally accountable for their professional conduct. The California Professional Corporation structure is governed by the Moscone-Knox Professional Corporation Act, which is part of the California Corporations Code as well as the California Business and Professions Code, which set out the specific rules for forming, owning, and operating a California Professional Corporation.

Essentially, a California Professional Corporation functions much like a traditional corporation but with key differences related to ownership and liability specifically tailored for California professionals.

Who is Required to Form a California Professional Corporation?

In California, certain professions are mandated by law to form a California Professional Corporation if they wish to incorporate their practice. They cannot form a standard S Corporation, C Corporation, or LLC to render their professional services.

The list of professions required to use the PC structure is extensive. According to the California Corporations Code, this includes, but is not limited to:

Accounting (California Business and Professions Code §§ 5150–5158);

Acupuncture (California Business and Professions Code §§ 4975–4979);

Architecture (California Business and Professions Code §§ 5610–5610.7);

Audiology (California Business and Professions Code §§ 2536–2537.4);

Chiropractic (California Business and Professions Code §§ 1050–1058);

Licensed Professional Clinical Counselor (California Business & Professions Code §§ 4999.123-4999.129)

Clinical Social Work (California Business and Professions Code §§ 4998–4998.5);

Dental Hygienist in Alternative Practice (California Business and Professions Code §§ 1967–1967.4);

Dentistry (California Business and Professions Code §§ 1800–1808);

Law (California Business and Professions Code §§ 6127.5, 6160–6172);

Marriage and Family Therapy (California Business and Professions Code §§ 4987.5–4988.2);

Medicine (California Business and Professions Code §§ 2400–2417.5);

Midwifery (California Business and Professions Code §§ 2505–2523);

Naturopathic Doctors (California Business and Professions Code §§ 3670–3675);

Nursing (California Business and Professions Code §§ 2775–2781);

Occupational Therapy (California Business and Professions Code §§ 2570 – 2572);

Optometry (California Business and Professions Code §§ 3160–3167);

Osteopathy (California Business and Professions Code §§ 2400–2417.5, 3600);

Pharmacy (California Business and Professions Code §§ 4150-4156);

Physical Therapy (California Business and Professions Code §§ 2690–2696);

Physician Assistants (California Business and Professions Code §§ 3540–3545);

Podiatry (California Business and Professions Code §§ 2400–2417.5);

Psychology (California Business and Professions Code §§ 2907–2913, 2995–2999);

Shorthand Court Reporters (California Business and Professions Code §§ 8040–8051);

Speech-Language Pathology (California Business and Professions Code §§ 2536–2537.4); and

Veterinarians (California Business and Professions Code §§ 4910–4917).

Attempting to practice through an incorrect business entity can lead to disciplinary action from the licensing board and other legal complications.

What are the Benefits of a California Professional Corporation?

Choosing to form a California Professional Corporation offers several significant advantages for a professional practice. Some of these advantages are as follows.

Liability Protection of California Professional Corporations

While a California Professional Corporation does not shield a California professional from malpractice or errors and omissions claims related to their own professional negligence, it does protect them from the malpractice of their business partners or fellow shareholders. In a California General Partnership, each partner has joint and several personal liable for the business debts and the professional negligence of all other partners. A California Professional Corporation creates a corporate shield, limiting the personal liability of a shareholder to their own actions or inactions. Personal assets are also protected from general business debts, liabilities, obligations, and legal judgments against the California Professional Corporation itself.

Tax Efficiency of California Professional Corporations

A California Professional Corporation can elect to be taxed as an S Corporation. This “pass-through” taxation allows the profits and losses of the California Professional Corporation to be passed directly to the personal income tax returns of shareholders, avoiding the double taxation that occurs with a standard C Corporation (where income is taxed at the corporate level and again when distributed as dividends). This can result in significant tax savings.

The primary advantage of an S-Corp election is the potential savings on self-employment taxes, which currently total 15.3% (12.4% for Social Security and 2.9% for Medicare).

Here is how it works: Say a California professional practice generates $100,000 in net profit annually. As a Sole Proprietor or partner in a California General Partnership, the California professional would pay self-employment taxes on the entire $100,000, or $15,300 in self-employment taxes. With an S-Corp election for a California Professional Corporation, the California professional might pay themself a reasonable salary of $50,000 (subject to employer and employee payroll taxes of 15.3% combined) and take the remaining $50,000 as a distribution (not subject to self-employment taxes or payroll taxes). This could potentially save the California professional over $7,500 annually in self-employment taxes on these example numbers.

Credibility and Permanence

Operating as a California Professional Corporation can enhance the credibility and professional image of a professional practice. The corporate structure of a California Professional Corporation suggests stability and permanence to patients or clients, partners, employees, and financial institutions. Unlike a sole proprietorship, which dissolves upon the death of its owner, a California Professional Corporation has a perpetual existence and can continue operating through changes in ownership.

What are the Naming Requirements for a California Professional Corporation?

California has strict naming rules for California Professional Corporations. The name of the California Professional Corporation must comply with both the California Corporations Code and the regulations of the specific licensing board governing the profession.

Generally, the name restrictions are as follows:

The Articles of Incorporation must include the name of the California Professional Corporation. California Corporations Code 202(a).

The Secretary of State shall not file articles setting forth a name in which “bank,” “trust,” “trustee,” or related words appear, unless the certificate of approval of the Commissioner of Financial Protection and Innovation is attached thereto. California Corporations Code Section 201(a).

The name of a California Professional Corporation shall not be a name that the Secretary of State determines is likely to mislead the public and shall be distinguishable in the records of the Secretary of State. California Corporations Code Section 201(b). This requires that names are not likely to mislead the public and be distinguishable from all other corporations in the records of the California Secretary of State that are in good standing, including names of foreign corporations qualified to transact interstate business in California.

The name of a California Professional Corporation shall not include the word “cooperative,” any abbreviation of it, or any related word. California Corporations Code 12311(b).

The name of a California Professional Corporation shall not include the words “Olympic” or “Olympiad,” or related phrases. 36 USC §220506.

The name of a California Professional Corporation shall not include the words “national,” “federal,” “United States,” “reserve,” or “deposit insurance,” and certain words and phrases referring to credit unions. 18 USC §709.

Most types of California Professional Corporations also have profession-specific requirements in addition to the general name restrictions as follows:

California Professional Accountancy Corporations

“No person or firm may practice public accountancy under any name which is false or misleading.” California Business and Professions Code Section 5060(a).

“No person or firm may practice public accountancy under any name other than the name under which the person or firm holds a valid permit to practice issued by the board.” California Business and Professions Code Section 5060(b).

“Notwithstanding subdivision (b), a sole proprietor may practice under a name other than the name set forth on his or her permit to practice, provided the name is registered by the board, is in good standing, and complies with the requirements of subdivision (a).” California Business and Professions Code Section 5060(c).

“The board may adopt regulations to implement, interpret, and make specific the provisions of this section including, but not limited to, regulations designating particular forms of names as being false or misleading.” California Business and Professions Code Section 5060(d).

California Professional Acupuncture Corporations

“The name of an acupuncture corporation and any name or names under which it may render professional services shall contain words “acupuncture” or “acupuncturist” and wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 4978.

A California Professional Acupuncture Corporation may not use “P.C.” as its designation of corporate existence.

California Professional Architecture Corporations

“The name of a professional architectural corporation and any name or names under which it may be rendering professional services shall contain and be restricted to the name or the last name of one or more of the present, prospective, or former shareholders, or of persons who were associated with a predecessor person, partnership, or other organization and whose name or names appeared in the name of the predecessor organization, and shall include either (1) the words “architectural corporation” or (2) the word “architect” or “architects” and wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 5610.3.

California Professional Audiology Corporations

“The name of an audiology corporation under which it may render professional services shall include one of the words specified in subdivision (b) of Section 2530.3 and the word “corporation” or wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 2537.4(b).

“A person represents himself or herself to be an audiologist when he or she holds himself or herself out to the public by any title or description of services incorporating the terms “audiology,” “audiologist,” “audiological,” “hearing clinic,” “hearing clinician,” “hearing therapist,” or any similar titles.” California Business and Professions Code Section 2530.3(b).

California Professional Chiropractic Corporations

“Notwithstanding any other provision of law, the name of a chiropractic corporation and any name or names under which it may be rendering professional services, shall contain the name or the last name of one or more of the present, prospective, or former shareholders, and shall include the word “chiropractic” and the word “corporation” or wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 1054.

California Professional Licensed Clinical Social Worker Corporations

“Notwithstanding Section 4996, the name of a licensed clinical social worker corporation and any name or names under which it may be rendering professional services shall contain the words “licensed clinical social worker” and wording or abbreviations denoting corporate existence. A licensed clinical social worker corporation that conducts business under a fictitious business name shall not use any name which is false, misleading, or deceptive, and shall inform the patient, prior to the commencement of treatment, that the business is conducted by a licensed clinical social worker corporation.” California Business and Professions Code Section 4998.2.

California Professional Dental Corporations

”Notwithstanding subdivision (i) of Section 1680 and subdivision (g) of Section 1701, the name of a dental corporation and any name or names under which it may be rendering professional services shall contain and be restricted to the name or the last name of one or more of the present, prospective, or former shareholders and shall include the words “dental corporation” or wording or abbreviations denoting corporate existence, unless otherwise authorized by a valid permit issued pursuant to Section 1701.5.” California Business and Professions Code Section 1804.

California Professional Dental Hygienist in Alternative Practice Corporations

The California Business and Professions Code is silent with respect to naming requirements and restrictions for California Professional Dental Hygienist in Alternative Practice Corporations.

California Professional Law Corporations

“That the name of the law corporation and any name or names under which it renders legal services shall be in compliance with the rules and regulations.” California Business and Professions Code Section 6171(c).

“That the law corporation shall obtain from the State Bar, and maintain current, a fictitious name permit when required by the rules and regulations; that the permit may be obtained, maintained, suspended, and revoked pursuant to procedures set forth in the rules and regulations; and that the law corporation shall pay an application and renewal fee for the permit in such amounts as may be determined by the State Bar.” California Business and Professions Code Section 6171(d).

“The name under which the law corporation intends to practice law must include a designation of corporate existence such as “A Professional Corporation”, “A Professional Law Corporation”, “Professional Corporation”, “Professional Law Corporation”, “Law Corporation”, “APC”, A.P.C.”, “PC”, “P.C.” “Prof. Corp.”, “A Professional Legal Corporation”, “Professional Legal Corporation”, “A Legal Corporation”,  “Corporation,” “A California Professional Corporation” “Incorporated”, or “Inc.”” California Rules of Professional Conduct 3.152(B).

California Professional Marriage and Family Therapy Corporations

“The name of a marriage and family therapy corporation shall contain one or more of the words “marriage,” “family,” or “child” together with one or more of the words “counseling,” “counselor,” “therapy,” or “therapist,” and wording or abbreviations denoting corporate existence. A marriage and family therapy corporation that conducts business under a fictitious business name shall not use any name that is false, misleading or deceptive, and shall inform the patient, prior to the commencement of treatment, that the business is conducted by a marriage and family therapy corporation.” California Business and Professions Code Section 4987.7.

California Professional Medical Corporations

“The use of any fictitious, false, or assumed name, or any name other than his or her own by a licensee either alone, in conjunction with a partnership or group, or as the name of a professional corporation, in any public communication, advertisement, sign, or announcement of his or her practice without a fictitious-name permit obtained pursuant to Section 2415 constitutes unprofessional conduct. This section shall not apply to the following: (a) Licensees who are employed by a partnership, a group, or a professional corporation that holds a fictitious name permit. (b) Licensees who contract with, are employed by, or are on the staff of, any clinic licensed by the State Department of Health Services under Chapter 1 (commencing with Section 1200) of Division 2 of the Health and Safety Code. (c) An outpatient surgery setting granted a certificate of accreditation from an accreditation agency approved by the medical board. (d) Any medical school approved by the division or a faculty practice plan connected with the medical school.” California Business and Professions Code Section 2285.

“(a) Any physician and surgeon or any doctor of podiatric medicine, as the case may be, who as a sole proprietor, or in a partnership, group, or professional corporation, desires to practice under any name that would otherwise be a violation of Section 2285 may practice under that name if the proprietor, partnership, group, or corporation obtains and maintains in current status a fictitious-name permit issued by the Division of Licensing, or, in the case of doctors of podiatric medicine, the California Board of Podiatric Medicine, under the provisions of this section. (b) The division or the board shall issue a fictitious-name permit authorizing the holder thereof to use the name specified in the permit in connection with his, her, or its practice if the division or the board finds to its satisfaction that: (1) The applicant or applicants or shareholders of the professional corporation hold valid and current licenses as physicians and surgeons or doctors of podiatric medicine, as the case may be. (2) The professional practice of the applicant or applicants is wholly owned and entirely controlled by the applicant or applicants. (3) The name under which the applicant or applicants propose to practice is not deceptive, misleading, or confusing. (c) Each permit shall be accompanied by a notice that shall be displayed in a location readily visible to patients and staff. The notice shall be displayed at each place of business identified in the permit. (d) This section shall not apply to licensees who contract with, are employed by, or are on the staff of, any clinic licensed by the State Department of Health Care Services under Chapter 1 (commencing with Section 1200) of Division 2 of the Health and Safety Code or any medical school approved by the division or a faculty practice plan connected with that medical school. (e) Fictitious-name permits issued under this section shall be subject to Article 19 (commencing with Section 2421) pertaining to renewal of licenses. (f) The division or the board may revoke or suspend any permit issued if it finds that the holder or holders of the permit are not in compliance with the provisions of this section or any regulations adopted pursuant to this section. A proceeding to revoke or suspend a fictitious-name permit shall be conducted in accordance with Section 2230. (g) A fictitious-name permit issued to any licensee in a sole practice is automatically revoked in the event the licensee’s certificate to practice medicine or podiatric medicine is revoked. (h) The division or the board may delegate to the executive director, or to another official of the board, its authority to review and approve applications for fictitious-name permits and to issue those permits. (i) The California Board of Podiatric Medicine shall administer and enforce this section as to doctors of podiatric medicine and shall adopt and administer regulations specifying appropriate podiatric medical name designations.” California Business and Professions Code Section 2415.

California Professional Midwifery Corporations

The California Business and Professions Code is silent with respect to naming requirements and restrictions for California Professional Midwifery Corporations.

California Professional Naturopathic Doctor Corporations

“The name of a naturopathic corporation and any name or names under which it may render professional services, shall contain the words “naturopathic” or “naturopathic doctor” and, as appropriate, wording or abbreviations denoting its status as a corporation.” California Business and Professions Code Section 3674.

California Professional Nursing Corporations

“The name of a nursing corporation and any name or names under which it may render professional services shall contain the words “nursing” or “registered nursing,” and wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 2778.

California Professional Occupational Therapy Corporations

The California Business and Professions Code is silent with respect to naming requirements and restrictions for California Professional Occupational Therapy Corporations.

California Professional Optometric Corporations

“Except as provided in Section 3078, the name of an optometric corporation and any name or names under which it may be rendering professional services shall contain and be restricted to the name or the last name of one or more of the present, prospective, or former shareholders and shall include the words optometric corporation or wording or abbreviations denoting corporate existence, provided that the articles of incorporation shall be amended to delete the name of a former shareholder from the name of the corporation within two years from the date the former shareholder dies or otherwise ceases to be a shareholder.” California Business and Professions Code Section 3163.

California Professional Osteopathy Corporations

The California Business and Professions Code is silent with respect to naming requirements and restrictions for California Professional Osteopathy Corporations; however, the California Code of Regulations provides as follows:

“Any Fictitious name shall contain the designation “medical group”, “medical clinic”, “medical corporation”, “medical associates”, “medical center”, or “medical office”. Such designation shall be contiguous in the name style and not separated by intervening words. This requirement also applies to those applicants who are sole practitioners.” 16 CCR Section 1676(a).

A group or clinic containing both a corporate and non-corporate entity or a partnership of corporations shall not use wording or abbreviations denoting corporate existence. When a professional corporation is an applicant, it shall use in its fictitious name style one of the word(s) or abbreviations denoting corporate existence as required by these regulations.” 16 CCR Section 1676(b).

The Board shall not issue a fictitious name permit for a name style which is false or misleading or which is so similar to a name previously authorized in the same geographical area as to be deceptive, misleading, or subject an individual consumer to confusion with a previously permitted fictitious name.” 16 CCR Section 1676(c).

The use of word(s) or abbreviation(s) following a licensed person’s name denoting affiliation with a professional medical society or association shall not create a fictitious name; however, the use of any word(s) or abbreviation(s) which denotes a particular specialty in medical practice which is advertised or disseminated in public.” 16 CCR Section 1676(d).

California Professional Physical Therapy Corporations

“The name of a physical therapy corporation and any name or names under which it may render professional services shall contain the words “physical therapy” or “physical therapist”, and wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 2693.

California Professional Physician Assistant Corporations

“The name of a physician assistant corporation and any name or names under which it may render professional services shall contain the words “physician assistant,” and wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 3543.

California Professional Podiatric Medical Corporations

“The use of any fictitious, false, or assumed name, or any name other than his or her own by a licensee either alone, in conjunction with a partnership or group, or as the name of a professional corporation, in any public communication, advertisement, sign, or announcement of his or her practice without a fictitious-name permit obtained pursuant to Section 2415 constitutes unprofessional conduct. This section shall not apply to the following: (a) Licensees who are employed by a partnership, a group, or a professional corporation that holds a fictitious name permit. (b) Licensees who contract with, are employed by, or are on the staff of, any clinic licensed by the State Department of Health Services under Chapter 1 (commencing with Section 1200) of Division 2 of the Health and Safety Code. (c) An outpatient surgery setting granted a certificate of accreditation from an accreditation agency approved by the medical board. (d) Any medical school approved by the division or a faculty practice plan connected with the medical school.” California Business and Professions Code Section 2285.

“(a) Any physician and surgeon or any doctor of podiatric medicine, as the case may be, who as a sole proprietor, or in a partnership, group, or professional corporation, desires to practice under any name that would otherwise be a violation of Section 2285 may practice under that name if the proprietor, partnership, group, or corporation obtains and maintains in current status a fictitious-name permit issued by the Division of Licensing, or, in the case of doctors of podiatric medicine, the California Board of Podiatric Medicine, under the provisions of this section. (b) The division or the board shall issue a fictitious-name permit authorizing the holder thereof to use the name specified in the permit in connection with his, her, or its practice if the division or the board finds to its satisfaction that: (1) The applicant or applicants or shareholders of the professional corporation hold valid and current licenses as physicians and surgeons or doctors of podiatric medicine, as the case may be. (2) The professional practice of the applicant or applicants is wholly owned and entirely controlled by the applicant or applicants. (3) The name under which the applicant or applicants propose to practice is not deceptive, misleading, or confusing. (c) Each permit shall be accompanied by a notice that shall be displayed in a location readily visible to patients and staff. The notice shall be displayed at each place of business identified in the permit. (d) This section shall not apply to licensees who contract with, are employed by, or are on the staff of, any clinic licensed by the State Department of Health Care Services under Chapter 1 (commencing with Section 1200) of Division 2 of the Health and Safety Code or any medical school approved by the division or a faculty practice plan connected with that medical school. (e) Fictitious-name permits issued under this section shall be subject to Article 19 (commencing with Section 2421) pertaining to renewal of licenses. (f) The division or the board may revoke or suspend any permit issued if it finds that the holder or holders of the permit are not in compliance with the provisions of this section or any regulations adopted pursuant to this section. A proceeding to revoke or suspend a fictitious-name permit shall be conducted in accordance with Section 2230. (g) A fictitious-name permit issued to any licensee in a sole practice is automatically revoked in the event the licensee’s certificate to practice medicine or podiatric medicine is revoked. (h) The division or the board may delegate to the executive director, or to another official of the board, its authority to review and approve applications for fictitious-name permits and to issue those permits. (i) The California Board of Podiatric Medicine shall administer and enforce this section as to doctors of podiatric medicine and shall adopt and administer regulations specifying appropriate podiatric medical name designations.” California Business and Professions Code Section 2415.

California Licensed Professional Clinical Counselor Corporations

“The name of a professional clinical counselor corporation and any name or names under which it may be rendering professional services shall contain the words “licensed professional clinical counselor” or “professional clinical counselor” and wording or abbreviations denoting a corporate existence. A professional clinical counselor corporation that conducts business under a fictitious business name shall not use any name that is false, misleading, or deceptive, and shall inform each patient, prior to commencement of treatment, that the business is conducted by a professional clinical counselor corporation.” California Business and Professions Code Section 4999.125.

California Professional Psychological Corporation

“The name of a psychological corporation and any name or names under which it may render professional services shall contain one of the words specified in subdivision (c) of Section 2902, and wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 2998.

“A person represents himself or herself to be a psychologist when the person holds himself or herself out to the public by any title or description of services incorporating the words “psychology,” “psychological,” “psychologist,” “psychology consultation,” “psychology consultant,” “psychometry,” “psychometrics” or “psychometrist,” “psychotherapy,” “psychotherapist,” “psychoanalysis,” or “psychoanalyst,” or when the person holds himself or herself out to be trained, experienced, or an expert in the field of psychology.” California Business and Professions Code Section 2902(c).

California Professional Speech-Language Pathology Corporation

“The name of a speech-language pathology corporation under which it may render professional services shall include one of the words specified in subdivision (a) of Section 2530.3 and the word “corporation” or wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 2537.4(a).

“A person represents himself or herself to be a speech-language pathologist when he or she holds himself or herself out to the public by any title or description of services incorporating the words “speech pathologist,” “speech pathology,” “speech therapy,” “speech correction,” “speech correctionist,” “speech therapist,” “speech clinic,” “speech clinician,” “language pathologist,” “language pathology,” “logopedics,” “logopedist,” “communicology,” “communicologist,” “aphasiologist,” “voice therapy,” “voice therapist,” “voice pathology,” or “voice pathologist,” “language therapist,” or “phoniatrist,” or any similar titles; or when he or she purports to treat stuttering, stammering, or other disorders of speech.” California Business and Professions Code Section 2530.3(a).

California Professional Veterinary Corporation

“Notwithstanding any other provision of law, the name of a veterinary corporation and any name or names under which it renders professional services shall include the words “veterinary corporation” or wording or abbreviations denoting corporate existence.” California Business and Professions Code Section 4911.

It is crucial to check the specific state licensing board for any additional naming restrictions or requirements. Some boards have very particular rules about what can and cannot be included in the name of a professional practice. The proposed name must also be available and not be misleadingly similar to an existing corporation name on file with the California Secretary of State.

Who Can Be a Shareholder in a California Professional Corporation?

Ownership in a California Professional Corporation is tightly restricted. According to the California Corporations Code, shares can only be issued to individuals who are licensed to practice the specific profession for which the corporation was formed.

There are a few exceptions. In some professions, other licensed professionals may be permitted to hold a minority ownership stake in accordance with California Corporations Code Section 13401.5 and California Business and Professions Code as follows:

California Professional Accountancy Corporation

California Business and Professions Code Section 5079(a) allows a California Professional Accountancy Corporation lawfully engaged in the practice of public accountancy to have shareholders who are not licensed as certified public accountants or public accountants if the following conditions are met:

(1)       Nonlicensee owners shall be natural persons or entities, such as partnerships, professional corporations, or others, provided that each ultimate beneficial owner of an equity interest in that entity shall be a natural person materially participating in the business conducted by the firm or an entity controlled by the firm.

(2)       Nonlicensee owners shall materially participate in the business of the firm, or an entity controlled by the firm, and their ownership interest shall revert to the firm upon the cessation of any material participation.

(3)       Licensees shall in the aggregate, directly or beneficially, comprise a majority of owners, except that firms with two owners may have one owner who is a nonlicensee.

(4)       Licensees shall in the aggregate, directly or beneficially, hold more than half of the equity capital and possess majority voting rights.

(5)       Nonlicensee owners shall not hold themselves out as certified public accountants or public accountants and each licensed firm shall disclose actual or potential involvement of nonlicensee owners in the services provided.

(6)       There shall be a certified public accountant or public accountant who has ultimate responsibility for each financial statement attest and compilation service engagement.

(7)       Except as permitted by the board in the exercise of its discretion, a person may not become a nonlicensee owner or remain a nonlicensee owner if the person has done either of the following:

(A)      Been convicted of any crime, an element of which is dishonesty or fraud, under the laws of any state, of the United States, or of any other jurisdiction.

(B)       Had a professional license or the right to practice revoked or suspended for reasons other than nonpayment of dues or fees, or has voluntarily surrendered a license or right to practice with disciplinary charges or a disciplinary investigation pending, and not reinstated by a licensing or regulatory agency of any state, or of the United States, including, but not limited to, the Securities and Exchange Commission or Public Company Accounting Oversight Board, or of any other jurisdiction.

Per California Business and Professions Code Section 5079(b):

(1)       A nonlicensee owner of a licensed firm shall report to the board in writing of the occurrence of any of the events set forth in paragraph (7) of subdivision (a) within 30 days of the date the nonlicensee owner has knowledge of the event. A conviction includes the initial plea, verdict, or finding of guilt, pleas of no contest, or pronouncement of sentence by a trial court even though that conviction may not be final or sentence actually imposed until appeals are exhausted.

(2)       A California nonlicensee owner of a licensed firm shall report to the board in writing the occurrence of any of the following events occurring on or after January 1, 2006, within 30 days of the date the California nonlicensee owner has knowledge of the events:

(A)      Any notice of the opening or initiation of a formal investigation of the nonlicensee owner by the Securities and Exchange Commission or its designee, or any notice from the Securities and Exchange Commission to a nonlicensee owner requesting a Wells submission.

(B)       Any notice of the opening or initiation of an investigation of the nonlicensee owner by the Public Company Accounting Oversight Board or its designee.

(C)      Any notice of the opening or initiation of an investigation of the nonlicensee owner by another professional licensing agency.

(3)       The report required by paragraphs (1) and (2) shall be signed by the nonlicensee owner and set forth the facts that constitute the reportable event. If the reportable event involves the action of an administrative agency or court, the report shall identify the name of the agency or court, the title of the matter, and the date of occurrence of the event.

(4)       Notwithstanding any other provision of law, reports received by the board pursuant to paragraph (2) shall not be disclosed to the public pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code) other than (A) in the course of any disciplinary proceeding by the board after the filing of a formal accusation, (B) in the course of any legal action to which the board is a party, (C) in response to an official inquiry from a state or federal agency, (D) in response to a subpoena or summons enforceable by order of a court, or (E) when otherwise specifically required by law.

(5)       Nothing in this subdivision shall impose a duty upon any licensee or nonlicensee owner to report to the board the occurrence of any events set forth in paragraph (7) of subdivision (a) or paragraph (2) of this subdivision either by or against any other nonlicensee owner.

Pursuant to California Business and Professions Code Section 5079(c), the following definitions apply:

(1)       “Licensee” means a certified public accountant or public accountant in this state or a certified public accountant in good standing in another state.

(2)       “Material participation” means an activity that is regular, continuous, and substantial.

Under California Business and Professions Code Section 5079(d), all firms with nonlicensee owners shall certify at the time of registration and renewal that the firm is in compliance with California Business and Professions Code Section 5079.

However, notwithstanding California Corporations Code Section 13401.5 and the California Business and Professions Code, at least 51% of the shares must be owned by professionals in the primary field and the number of other professionals cannot outnumber the professionals in the primary field.

These restrictions also apply to who can be directors and officers. In most cases, the president and treasurer of the corporation, along with at least half of the directors, must be licensed professionals.

California Professional Medical Corporation

Per California Corporations Code Section 13401.5(a)(1)-(15), in addition to licensed physicians and medical corporations, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Medical Corporation:

Licensed doctors of podiatric medicine. (Section 13401.5(a)(1))

Licensed psychologists. (Section 13401.5(a)(2))

Registered nurses. (Section 13401.5(a)(3))

Licensed optometrists. (Section 13401.5(a)(4))

Licensed marriage and family therapists. (Section 13401.5(a)(5))

Licensed clinical social workers. (Section 13401.5(a)(6))

Licensed physician assistants. (Section 13401.5(a)(7))

Licensed chiropractors. (Section 13401.5(a)(8))

Licensed acupuncturists. (Section 13401.5(a)(9))

Naturopathic doctors. (Section 13401.5(a)(10))

Licensed professional clinical counselors. (Section 13401.5(a)(11))

Licensed physical therapists. (Section 13401.5(a)(12))

Licensed pharmacists. (Section 13401.5(a)(13))

Licensed midwives. (Section 13401.5(a)(14))

Licensed occupational therapists. (Section 13401.5(a)(15))

California Professional Podiatric Medical Corporation

Per California Corporations Code Section 13401.5(b)(1)-(8), in addition to licensed podiatrists and other Podiatric Medical Corporations, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Podiatric Medical Corporation:

Licensed physicians and surgeons. (Section 13401.5(b)(1))

Licensed psychologists. (Section 13401.5(b)(2))

Registered nurses. (Section 13401.5(b)(3))

Licensed optometrists. (Section 13401.5(b)(4))

Licensed chiropractors. (Section 13401.5(b)(5))

Licensed acupuncturists. (Section 13401.5(b)(6))

Naturopathic doctors. (Section 13401.5(b)(7))

Licensed physical therapists. (Section 13401.5(b)(8))

California Professional Psychological Corporation

Per California Corporations Code Section 13401.5(c)(1)-(11), in addition to licensed psychologists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Psychological Corporation:

Licensed physicians and surgeons. (Section 13401.5(c)(1))

Licensed doctors of podiatric medicine. (Section 13401.5(c)(2))

Registered nurses. (Section 13401.5(c)(3))

Licensed optometrists. (Section 13401.5(c)(4))

Licensed marriage and family therapists. (Section 13401.5(c)(5))

Licensed clinical social workers. (Section 13401.5(c)(6))

Licensed chiropractors. (Section 13401.5(c)(7))

Licensed acupuncturists. (Section 13401.5(c)(8))

Naturopathic doctors. (Section 13401.5(c)(9))

Licensed professional clinical counselors. (Section 13401.5(c)(10))

Licensed midwives. (Section 13401.5(c)(11))

California Professional Speech-Language Pathology Corporation

Per California Corporations Code Section 13401.5(d)(1), in addition to licensed speech therapists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Speech-Language Pathology Corporation:

Licensed audiologists. (Section 13401.5(d)(1))

California Professional Audiology Corporation

Per California Corporations Code Section 13401.5(e)(1), in addition to licensed audiologists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Audiology Corporation:

Licensed speech-language pathologists. (Section 13401.5(e)(1))

California Professional Nursing Corporation

Per California Corporations Code Section 13401.5(f)(1)-(12), in addition to licensed nurses and nurse practitioners, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Nursing Corporation:

Licensed physicians and surgeons. (Section 13401.5(f)(1))

Licensed doctors of podiatric medicine. (Section 13401.5(f)(2))

Licensed psychologists. (Section 13401.5(f)(3))

Licensed optometrists. (Section 13401.5(f)(4))

Licensed marriage and family therapists. (Section 13401.5(f)(5))

Licensed clinical social workers. (Section 13401.5(f)(6))

Licensed physician assistants. (Section 13401.5(f)(7))

Licensed chiropractors. (Section 13401.5(f)(8))

Licensed acupuncturists. (Section 13401.5(f)(9))

Naturopathic doctors. (Section 13401.5(f)(10))

Licensed professional clinical counselors. (Section 13401.5(f)(11))

Licensed midwives. (Section 13401.5(f)(12))

California Professional Marriage and Family Therapy Corporation

Per California Corporations Code Section 13401.5(g)(1)-(9), in addition to LMFTs, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Marriage and Family Therapy Corporation:

Licensed physicians and surgeons. (Section 13401.5(g)(1))

Licensed psychologists. (Section 13401.5(g)(2))

Licensed clinical social workers. (Section 13401.5(g)(3))

Registered nurses. (Section 13401.5(g)(4))

Licensed chiropractors. (Section 13401.5(g)(5))

Licensed acupuncturists. (Section 13401.5(g)(6))

Naturopathic doctors. (Section 13401.5(g)(7))

Licensed professional clinical counselors. (Section 13401.5(g)(8))

Licensed midwives. (Section 13401.5(g)(9))

California Professional Licensed Clinical Social Worker Corporation

Per California Corporations Code Section 13401.5(h)(1)-(8), in addition to licensed clinical social workers, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Licensed Clinical Social Worker Corporation:

Licensed physicians and surgeons. (Section 13401.5(h)(1))

Licensed psychologists. (Section 13401.5(h)(2))

Licensed marriage and family therapists. (Section 13401.5(h)(3))

Registered nurses. (Section 13401.5(h)(4))

Licensed chiropractors. (Section 13401.5(h)(5))

Licensed acupuncturists. (Section 13401.5(h)(6))

Naturopathic doctors. (Section 13401.5(h)(7))

Licensed professional clinical counselors. (Section 13401.5(h)(8))

California Professional Physician Assistant Corporation

Per California Corporations Code Section 13401.5(i)(1)-(5), in addition to licensed physician assistants, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Physician Assistant Corporation:

Licensed physicians and surgeons. (Section 13401.5(i)(1))

Registered nurses. (Section 13401.5(i)(2))

Licensed acupuncturists. (Section 13401.5(i)(3))

Naturopathic doctors. (Section 13401.5(i)(4))

Licensed midwives. (Section 13401.5(i)(5))

California Professional Optometric Corporation

Per California Corporations Code Section 13401.5(j)(1)-(7), in addition to licensed optometrists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Optometry Corporation:

Licensed physicians and surgeons. (Section 13401.5(j)(1))

Licensed doctors of podiatric medicine. (Section 13401.5(j)(2))

Licensed psychologists. (Section 13401.5(j)(3))

Registered nurses. (Section 13401.5(j)(4))

Licensed chiropractors. (Section 13401.5(j)(5))

Licensed acupuncturists. (Section 13401.5(j)(6))

Naturopathic doctors. (Section 13401.5(j)(7))

California Professional Chiropractic Corporation

Per California Corporations Code Section 13401.5(k)(1)-(11), in addition to licensed chiropractors, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Chiropractic Corporation:

Licensed physicians and surgeons. (Section 13401.5(k)(1))

Licensed doctors of podiatric medicine. (Section 13401.5(k)(2))

Licensed psychologists. (Section 13401.5(k)(3))

Registered nurses. (Section 13401.5(k)(4))

Licensed optometrists. (Section 13401.5(k)(5))

Licensed marriage and family therapists. (Section 13401.5(k)(6))

Licensed clinical social workers. (Section 13401.5(k)(7))

Licensed acupuncturists. (Section 13401.5(k)(8))

Naturopathic doctors. (Section 13401.5(k)(9))

Licensed professional clinical counselors. (Section 13401.5(k)(10))

Licensed midwives. (Section 13401.5(k)(11))

California Professional Acupuncture Corporation

Per California Corporations Code Section 13401.5(l)(1)-(12), in addition to licensed acupuncturists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Acupuncture Corporation:

Licensed physicians and surgeons. (Section 13401.5(l)(1))

Licensed doctors of podiatric medicine. (Section 13401.5(l)(2))

Licensed psychologists. (Section 13401.5(l)(3))

Registered nurses. (Section 13401.5(l)(4))

Licensed optometrists. (Section 13401.5(l)(5))

Licensed marriage and family therapists. (Section 13401.5(l)(6))

Licensed clinical social workers. (Section 13401.5(l)(7))

Licensed physician assistants. (Section 13401.5(l)(8))

Licensed chiropractors. (Section 13401.5(l)(9))

Naturopathic doctors. (Section 13401.5(l)(10))

Licensed professional clinical counselors. (Section 13401.5(l)(11))

Licensed midwives. (Section 13401.5(l)(12))

California Professional Naturopathic Doctor Corporation

Per California Corporations Code Section 13401.5(m)(1)-(13), in addition to licensed naturopathic doctors, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Naturopathic Doctor Corporation:

Licensed physicians and surgeons. (Section 13401.5(m)(1))

Licensed psychologists. (Section 13401.5(m)(2))

Registered nurses. (Section 13401.5(m)(3))

Licensed physician assistants. (Section 13401.5(m)(4))

Licensed chiropractors. (Section 13401.5(m)(5))

Licensed acupuncturists. (Section 13401.5(m)(6))

Licensed physical therapists. (Section 13401.5(m)(7))

Licensed doctors of podiatric medicine. (Section 13401.5(m)(8))

Licensed marriage and family therapists. (Section 13401.5(m)(9))

Licensed clinical social workers. (Section 13401.5(m)(10))

Licensed optometrists. (Section 13401.5(m)(11))

Licensed professional clinical counselors. (Section 13401.5(m)(12))

Licensed midwives. (Section 13401.5(m)(13))

California Professional Dental Corporation

Per California Corporations Code Section 13401.5(n)(1)-(7), in addition to licensed dentists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Dental Corporation:

Licensed physicians and surgeons. (Section 13401.5(n)(1))

Dental assistants. (Section 13401.5(n)(2))

Registered dental assistants. (Section 13401.5(n)(3))

Registered dental assistants in extended functions. (Section 13401.5(n)(4))

Registered dental hygienists. (Section 13401.5(n)(5))

Registered dental hygienists in extended functions. (Section 13401.5(n)(6))

Registered dental hygienists in alternative practice. (Section 13401.5(n)(7))

California Professional Clinical Counselor Corporation

Per California Corporations Code Section 13401.5(o)(1)-(9), in addition to licensed professional clinical counselors, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Clinical Counselor Corporation:

Licensed physicians and surgeons. (Section 13401.5(o)(1))

Licensed psychologists. (Section 13401.5(o)(2))

Licensed clinical social workers. (Section 13401.5(o)(3))

Licensed marriage and family therapists. (Section 13401.5(o)(4))

Registered nurses. (Section 13401.5(o)(5))

Licensed chiropractors. (Section 13401.5(o)(6))

Licensed acupuncturists. (Section 13401.5(o)(7))

Naturopathic doctors. (Section 13401.5(o)(8))

Licensed midwives. (Section 13401.5(o)(9))

California Professional Physical Therapy Corporation

Per California Corporations Code Section 13401.5(p)(1)-(11), in addition to licensed physical therapists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Physical Therapy Corporation:

Licensed physicians and surgeons. (Section 13401.5(p)(1))

Licensed doctors of podiatric medicine. (Section 13401.5(p)(2))

Licensed acupuncturists. (Section 13401.5(p)(3))

Naturopathic doctors. (Section 13401.5(p)(4))

Licensed occupational therapists. (Section 13401.5(p)(5))

Licensed speech-language therapists. (Section 13401.5(p)(6))

Licensed audiologists. (Section 13401.5(p)(7))

Registered nurses. (Section 13401.5(p)(8))

Licensed psychologists. (Section 13401.5(p)(9))

Licensed physician assistants. (Section 13401.5(p)(10))

Licensed midwives. (Section 13401.5(p)(11))

California Professional Registered Dental Hygienist in Alternative Practice Corporation

Per California Corporations Code Section 13401.5(q)(1)-(4), in addition to registered dental hygienist in alternative practice, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Registered Dental Hygienist in Alternative Practice Corporation:

Registered dental assistants. (Section 13401.5(q)(1))

Licensed dentists. (Section 13401.5(q)(2))

Registered dental hygienists. (Section 13401.5(q)(3))

Registered dental hygienists in extended functions. (Section 13401.5(q)(4))

California Professional Midwifery Corporation

Per California Corporations Code Section 13401.5(r)(1)-(11), in addition to licensed midwives, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Midwifery Corporation:

Licensed physicians and surgeons. (Section 13401.5(r)(1))

Licensed psychologists. (Section 13401.5(r)(2))

Registered nurses. (Section 13401.5(r)(3))

Licensed marriage and family therapists. (Section 13401.5(r)(4))

Licensed clinical social workers. (Section 13401.5(r)(5))

Licensed physician assistants. (Section 13401.5(r)(6))

Licensed chiropractors. (Section 13401.5(r)(7))

Licensed acupuncturists. (Section 13401.5(r)(8))

Licensed naturopathic doctors. (Section 13401.5(r)(9))

Licensed professional clinical counselors. (Section 13401.5(r)(10))

Licensed physical therapists. (Section 13401.5(r)(11))

California Professional Occupational Therapy Corporation

Per California Corporations Code Section 13401.5(s)(1)-(14), in addition to licensed occupational therapists, the following other licensed persons (as defined in Section 13401 of the California Corporations Code) may also be eligible to become shareholders of a California Professional Occupational Therapy Corporation:

Licensed physicians and surgeons. (Section 13401.5(s)(1))

Licensed doctors of podiatric medicine. (Section 13401.5(s)(2))

Licensed acupuncturists. (Section 13401.5(s)(3))

Naturopathic doctors. (Section 13401.5(s)(4))

Licensed physical therapists. (Section 13401.5(s)(5))

Licensed speech-language therapists. (Section 13401.5(s)(6))

Licensed audiologists. (Section 13401.5(s)(7))

Registered nurses. (Section 13401.5(s)(8))

Licensed psychologists. (Section 13401.5(s)(9))

Licensed physician assistants. (Section 13401.5(s)(10))

Licensed midwives. (Section 13401.5(s)(11))

Licensed clinical social workers. (Section 13401.5(s)(12))

Licensed marriage and family therapists. (Section 13401.5(s)(13))

Licensed occupational therapy assistants. (Section 13401.5(s)(14))

Can a California Professional Corporation be an S Corp?

Yes, a California Professional Corporation can elect to be taxed as an S Corporation. This is one of the most common and beneficial tax strategies for California Professional Corporations.

By filing Internal Revenue Service Form 2553, “Election by a Small Business Corporation,” the California Professional Corporation can opt for S-Corp tax status. This means the California Professional Corporation itself does not pay federal income tax. Instead, the income, losses, deductions, and credits are “passed through” to the shareholders, who report them on their personal tax returns. This structure avoids the double taxation associated with C Corporations.

To qualify for S-Corp status, the California Professional Corporation must meet certain IRS requirements, including:

Be a domestic corporation.

Have only allowable shareholders (individuals, certain trusts, and estates).

Have no more than 100 shareholders.

Have only one class of stock.

Choosing S-Corp status can provide significant tax advantages, but it also comes with complexities, such as the requirement to pay reasonable salaries to shareholder-employees. Consulting with a tax professional is essential to determine if this is the right choice for your practice.

Can a California LLC Register as a Professional Corporation in California?

No, a California LLC cannot register to do business as a Professional Corporation in California, nor may a California LLC provide the services of a California Professional Corporation. The California Corporations Code has specific rules that prevent most licensed professionals from using a California LLC structure for their professional practice, most notably California Corporations Code Section 17701.04(e) which reads in full as follows:

“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.”

Licensed professionals cannot operate as a California LLC or a similar entity in another state to provide professional services. Instead, they would typically need to form a California Professional Corporation to conduct their professional practice in California in corporate form.

Can a Foreign LLC Register as a Professional Corporation in California?

No, a foreign limited liability company ( foreign LLC) cannot register to do business as a Professional Corporation in California, nor may a foreign LLC provide the services of a California Professional Corporation. The California Corporations Code has specific rules that prevent most licensed professionals from using a foreign LLC structure for their professional practice, most notably California Corporations Code Section 17701.04(e) which reads in full as follows:

“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.”

If a group of licensed professionals operates as an LLC or a similar entity in another state, they cannot simply register that entity in California to provide professional services. Instead, they would typically need to form a new, separate California Professional Corporation to conduct their professional practice in California in corporate form.

This area of California law can be complex, especially when dealing with multi-state practices. The rules are in place to ensure that all professionals practicing in California adhere to California’s strict liability and oversight standards, which are tied to the California Professional Corporation structure. If a practice operates across state lines, seeking legal advice is critical to ensure compliance.

What Happens if a Shareholder Dies or Becomes Disqualified?

The California Corporations Code has specific provisions for what happens when a shareholder in a California Professional Corporation passes away or loses their license (becomes “disqualified”).

Because ownership is restricted to licensed professionals, the shares of a deceased or disqualified shareholder of a California Professional Corporation cannot be transferred to an unlicensed person, such as a family member or an heir. The California Professional Corporation or its remaining shareholders are legally obligated to repurchase the shares from the deceased shareholder’s estate or from the disqualified individual, and California law sets a timeframe for this repurchase.

The price and terms are often negotiated after disqualification, but may be set forth in advance in a separate shareholder agreement such as a Buy-Sell Agreement. Having a clear, pre-negotiated Buy-Sell Agreement in place is vital to prevent disputes and ensure a smooth transition. Without one, the parties may have to rely on the default provisions of the law, which could lead to complications and significant legal expenses.

Make an Informed Decision for Your Practice

Forming and maintaining a California Professional Corporation involves navigating a unique set of legal and regulatory requirements. While the structure offers significant benefits in terms of liability protection and tax flexibility, compliance with the California Corporations Code and the professional licensing board is paramount.

From understanding who can be a shareholder to adhering to strict naming conventions, the details matter. Taking the time to get it right from the beginning can save you from potential legal issues, financial penalties, and even disciplinary action down the road.

If you have more questions or need guidance on setting up a California Professional Corporation for your practice, the experienced corporate attorneys at San Diego Corporate Law are here to help. We can provide the clarity and support you need to build a solid legal foundation for your business.

Schedule a consultation today to discuss your specific needs and learn how we can assist you in navigating the complexities of California corporate law for California Professional Corporations.