Californians employed as professionals and seeking to start a business should consider incorporating as professional corporations. You may have seen the initials “P.C.” at the end of a doctor’s office or lawyer’s firm name, which indicates that the firm is a professional corporation. Professional corporations differ from typical corporations in a few key ways.

First, all officers, directors, and shareholders of a professional corporation must be licensed professionals, except under a few limited exceptions. California Corporations Code §§ 13406(a), 13403. “Professional” in this context means someone holding a state license, such as doctors, dentists, lawyers, architects, certified public accountants, engineers, and veterinarians, among others. Corporations Code §§ 13400-13404. A professional corporation must have an active registration or registrations in the industry in which its professionals practice. Corporations Code § 13404.

Further requirements and restrictions on formation of a professional corporation vary by the profession. The California Business and Professionals Code provides further information:

• Accountants – Business and Professionals Code §§ 5150-5158
• Lawyers – Business and Professionals Code §§ 6000-6228
• Dentists – Business and Professionals Code §§ 1800-1808
• Doctors – Business and Professionals Code §§ 2000-2521
• Veterinarians – Business and Professionals Code §§ 4800-4917

One disadvantage of a professional corporation is the possibility of the principals’ personal liability for professional negligence. The corporate structure generally does not protect its principals from being personally liable for negligence in performing professional activities, commonly called malpractice. Professional corporations can obtain malpractice insurance instead. However, the corporate structure does shield the principals from liability for ordinary negligence, such as a slip-and-fall accident at the corporation’s office.

A few notable advantages of a professional corporation include the ease of transferring ownership, the formal setup for profit distribution, and the privacy protection. In many types of professional corporations, profits can only be distributed to professionals, although employees may be paid salaries independent of profit distributions. Further, private professional corporations’ financial statements are treated as confidential by the state. Corporations Code § 13406(a).

Seek legal advice to learn more about forming a professional corporation and the unique legal requirements for professionals running a business. Michael Leonard, Esq., of San Diego Corporate Law, named a “Rising Star” for 2017 by SuperLawyers, is an experienced business attorney familiar with California business incorporation. To schedule a consultation, e-mail San Diego Corporate Law or call Mr. Leonard at (858) 483-9200.