Choosing the right business structure is a critical decision for registered nurses and nurse practitioners establishing their private practices in California. While foreign professional corporations are popular outside of California for their flexibility and tax benefits, nursing practices in California are expressly prohibited from operating as a foreign professional corporations in California.

While the question, “Can Nurses Practice Using a Foreign Professional Corporation in California?” has been answered in previous that previous article and the articles cited and summarized below, the experienced corporate attorneys at San Diego Corporate Law receive inquiries on a weekly basis from registered nurses and nurse practitioners receiving mixed information from other attorneys or advisors leading them to believe that in certain circumstances it might be permissible to practice nursing in a foreign professional corporation in California.

This article references and links to previous articles with regard to the business structures and business entities registered nurses and nurse practitioners may use to practice nursing in California, but the purpose of this article is to highlight and explore the specific provisions of the California Corporations Code that prohibits the use of foreign professional corporations to render professional services as a registered nurse or nurse practitioner in California.

California Corporations Code Section 13401

The Moscone-Knox Professional Corporations Act is found in California Corporations Code Sections 13400-13410. California Corporations Code Section 13401(b) provides the authority for registered nurses and nurse practitioners to practice in California as California Professional Nursing Corporations with the purpose of rendering professional services in their practice of nursing.

California Corporations Code Section 13401 also provides three definitions required to properly analyze the restrictions on the use of foreign corporations by registered nurses and nurse practitioners practicing nursing in California.

California Corporations Code Section 13401(a)

California Corporations Code Section 13401(a) provides the definition of “Professional Services” as follows:

“‘Professional services’ means any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.”

Thus, Professional Services under the definition provided by California Corporations Code Section 13401(a) encompasses many professions, including nursing under California Business and Professions Code Sections 2775–2781.

California Corporations Code Section 13401(c)

California Corporations Code Section 13401(c) provides the definition of “Foreign Professional Corporation Person” as follows:

”’Foreign professional corporation’ means a corporation organized under the laws of a state of the United States other than this state that is engaged in a profession of a type for which there is authorization in the Business and Professions Code for the performance of professional services by a foreign professional corporation.”

California Corporations Code Section 13401(d)

California Corporations Code Section 13401(d) provides the definition of “Licensed Person” as follows:

“‘Licensed person’ means any natural person who is duly licensed under the provisions of the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act to render the same professional services as are or will be rendered by the professional corporation or foreign professional corporation of which the person is, or intends to become, an officer, director, shareholder, or employee.”

Thus, Licensed Person under the definition provided by California Corporations Code Section 13401(d) means those persons licensed in the professions listed above as providers of Professional Services under California Corporations Code Section 13401(a), which includes registered nurses and nurse practitioners in California.

California Corporations Code Section 13404.5

Much of the confusion surrounding the use of foreign professional corporations can likely be attributed to California Corporations Code Section 13404.5(a), which reads:

“A foreign professional corporation may qualify as a foreign corporation to transact intrastate business in this state in accordance with Chapter 21 (commencing with Section 2100) of Division 1. A foreign professional corporation shall be subject to the provisions of the General Corporation Law applicable to foreign corporations, except where those provisions are in conflict with or inconsistent with the provisions of this part. The statement and designation filed by the foreign professional corporation pursuant to Section 2105 shall contain a specific statement that the corporation is a foreign professional corporation within the meaning of this part.”

To someone not familiar with the reading California law, this may appear to be blanket permission to use a foreign professional corporation to practice in California. However, the term “may qualify” is not the requirement registered nurses and nurse practitioners need to render nursing services in California with a foreign professional corporation.

The following section, California Corporations Code Section 13404.5(b), sets forth the requirement for a professional to practice in California in a foreign professional corporation as follows:

“No foreign professional corporation shall render professional services in this state without a currently effective certificate of registration issued by the governmental agency regulating the profession in which that corporation proposes to be engaged, pursuant to the applicable provisions of the Business and Professions Code expressly authorizing those professional services to be rendered by a foreign professional corporation.”

At the time of this writing, only two governmental agencies regulating professions provide a certificate of registration for foreign professional corporations to be used in California, namely, the California Accountancy Board and the State Bar of California.

For certified public accountants, California Business and Professions Code Section 5151 provides is the applicable provision, reading:

“An applicant for registration as an accountancy corporation shall supply to the board all necessary and pertinent documents and information requested by the board concerning the applicant’s plan of operation. The board may provide forms of application. If the board finds that the corporation is duly organized and existing under the General Corporation Law or the foreign corporation is duly qualified for the transaction of intrastate business pursuant to the General Corporation Law, that, except as otherwise permitted under Section 5053 or 5079, each officer, director, shareholder, or employee who will render professional services is a licensed person as defined in the Moscone-Knox Professional Corporation Act, or a person licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and that from the application it appears that the affairs of the corporation will be conducted in compliance with law and the rules and regulations of the board, the board shall upon payment of the registration fee in the amount as it may determine, issue a certificate of registration. The applicant shall include with the application for each shareholder of the corporation licensed in a foreign country but not in this state or in any other state, territory, or possession of the United States, a certificate from the authority in the foreign country currently having final jurisdiction over the practice of accounting, which shall verify the shareholder’s admission to practice in the foreign country, the date thereof, and the fact that the shareholder is currently in good standing as the equivalent of a certified public accountant or public accountant. If the certificate is not in English, there shall be included with the certificate a duly authenticated English translation thereof. The application shall be signed and verified by an officer of the corporation. At the time of application, if the corporation has a valid email address, it shall provide that email address to the board.”

Attorneys rely upon California Business and Professions Code Section 6161 which applicable provision reads:

“An applicant for registration as a law corporation shall supply to the State Bar all necessary and pertinent documents and information requested by the State Bar concerning the applicant’s plan of operation, including, but not limited to, a copy of its articles of incorporation, certified by the Secretary of State, a copy of its bylaws, certified by the secretary of the corporation, the name and address of the corporation, the names and addresses of its officers, directors, shareholders, members, if any, and employees who will render professional services, the address of each office, and any fictitious name or names which the corporation intends to use. The State Bar may provide forms of application. If the Board of Trustees or a committee authorized by it finds that the corporation is duly organized and existing or duly qualified for the transaction of intrastate business pursuant to the General Corporation Law, or pursuant to subdivision (b) of Section 13406 of the Corporations Code, that each officer (except as provided in Section 13403 of the Corporations Code), director, shareholder (except as provided in subdivision (b) of Section 13406 of the Corporations Code), and each employee who will render professional services is a licensed person as defined in the Professional Corporation Act, or a person licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and that from the application it appears that the affairs of the corporation will be conducted in compliance with law and the rules and regulations of the State Bar, the State Bar shall upon payment of the registration fee in such amount as it may determine issue a certificate of registration. The applicant shall include with the application, for each shareholder of the corporation licensed in a foreign country but not in this state or in any other state, territory, or possession of the United States, a certificate from the authority in the foreign country currently having final jurisdiction over the practice of law, which shall verify the shareholder’s admission to practice in the foreign country, the date thereof, and the fact that the shareholder is currently in good standing as an attorney or counselor at law or the equivalent. If the certificate is not in English, there shall be included with the certificate a duly authenticated English translation thereof. The application shall be signed and verified by an officer of the corporation.”

There are no similar provisions for any profession other than accountancy and law as of the time of this writing, thus no other profession may be practiced in California with a foreign professional corporation.

Secretary of State Application to Register a Foreign Professional Corporation for Authority to Transact Business in California for a Nursing Practice

CA SOS Foreign PC Screenshot

As shown in the image above, in order to register a foreign professional corporation for authority to transact business in California for nursing services with the California Secretary of State (commonly referred to as foreign registration), the filer must choose the profession to be practiced, however, only check boxes for accountancy and law are provided. Therefore, unless a foreign professional corporation is for a practice of accountancy or law, it is not possible to register a foreign professional corporation for authority to transact business in California.

Reasons for Prohibition Against Use of a Foreign Professional Corporation for Registered Nurses and Nurse Practitioners in California

The main reason for prohibiting the use of foreign professional corporations by registered nurses and nurse practitioners is to ensure compliance with professional regulations and protect the public from potential harm caused by unqualified or unethical individuals providing nursing services by upholding public accountability standards specific to the practice of nursing. The State of California wants to ensure that only registered nurses and nurse practitioners who have met certain education and training requirements are able to offer their expertise and advice in a professional capacity as a registered nurse or nurse practitioner.

The reasoning behind this restriction stems from the nature of nursing services, which requires specialized knowledge and experience, and is subject to stringent regulation by the State of California and the California Board of Registered Nursing. Professions such as nursing demand accountability not just to patients but also to their professional licensing boards, and where the California Board of Accountancy and State Bar of California are able to provide this regulation for certified public accountants and licensed attorneys, respectively, the California Board of Registered Nursing is not providing the same level of oversight for registered nurses and nurse practitioners who would seek to practice nursing in California in a foreign professional corporation.

Foreign professional corporations are deemed incompatible with the heightened accountability standards the State of California applies to registered nurses and nurse practitioners. Thus, registered nurses and nurse practitioners practicing in California must choose alternative structures that better align with the regulatory oversight and public protection goals of the State of California.

California Professional Nursing Corporations require adherence to stricter regulations regarding ownership and governance. Registered nurse or nurse practitioner shareholders of a California Professional Nursing Corporation must be licensed to practice nursing or certain other licensed professions permitted to be shareholders under California Corporations Code Section 13401.5 (see: “Who May Be a Shareholder of a California Professional Nursing Corporation?“), ensuring that ethical standards and professional expertise guide the practice of nursing.

Permitted California Business Structures for Registered Nurses and Nurse Practitioners

Registered nurses and nurse practitioners in California are restricted in the types of business entities they may form due to California law in the California Corporations Code discussed above. These California laws are designed to ensure compliance with professional standards of practice and maintain accountability for practicing nursing in California.

A previous article titled “Can Nurses Practice Using a Foreign Professional Corporation in California?” answered the question of whether a registered nurse or nurse practitioner could use a foreign professional corporation in California and discussed some of the possible alternatives to practicing as a foreign professional corporation.

This section will provide an overview of the permitted business structures that registered nurses and nurse practitioners may utilize, including California Professional Nursing Corporations, partnerships, and sole proprietorships, while providing links to articles containing more information about the specific requirements and considerations for each business entity structure.

Sole Proprietorships for California Registered Nurses and Nurse Practitioners

A sole proprietorship is the simplest business structure for registered nurses and nurse practitioners to practice nursing in California, but it does come with some downsides. It is an unincorporated business owned and operated by the registered nurse or nurse practitioner personally, making it straightforward to set up and maintain, but it provides no liability protection or tax benefits. For registered nurses and nurse practitioners in California, understanding how a sole proprietorship functions and the associated considerations is critical to ensuring compliance and achieving success.

Key Features of Sole Proprietorships for California Registered Nurses and Nurse Practitioners

One of the primary advantages of a sole proprietorship is ease of formation. There are minimal regulatory requirements compared to other business structures, which reduces the time and cost of starting a practice. Sole proprietors simply need to obtain the appropriate professional licenses and any required local permits to begin operations.

Another notable feature of a sole proprietorship is that the registered nurse or nurse practitioner has complete control of the business. This autonomy allows registered nurses and nurse practitioners to make decisions and manage their practice without needing approval from partners or shareholders.

However, sole proprietors are personally liable for all debts and obligations of their business. For California registered nurses and nurse practitioners, this means that personal assets can be at risk if claims arise from nursing services or other business activities. It is crucial for sole proprietors to consider obtaining adequate liability insurance to mitigate this risk.

Tax Considerations of Sole Proprietorship for Practicing Nursing

From a tax perspective, sole proprietorships are treated as “pass-through” entities. This means the business income is reported directly on the owner’s personal tax return, simplifying the tax filing process. However, sole proprietors are subject to self-employment taxes, which includes both the employer and employee portions of Social Security and Medicare taxes.

Is a Sole Proprietorship Right for You?

While a sole proprietorship may offer simplicity and independence, it is essential to weigh the potential risks and benefits relative to other business structures, such as California Professional Nursing Corporations. Licensed professionals should assess their long-term business goals, liability exposure, and the administrative requirements when selecting a business entity. For more detailed guidance on sole proprietorships for licensed professionals in California, consult “Sole Proprietorship vs Professional Nursing Corporation in California” and “What are the Business Structure Options for Solo Registered Nurses and Nurse Practitioners in California?” or schedule a consultation with the experienced corporate attorneys at San Diego Corporate Law to ensure compliance and alignment with your professional objectives.

Partnerships for California Registered Nurses and Nurse Practitioners

A partnership is one of the simplest business entity structures available for two or more registered nurses and nurse practitioners looking to collaborate professionally. For California registered nurses and nurse practitioners, partnerships may offer a straightforward structure for operating a nursing practice. However, it is essential to understand the benefits, limitations, and regulatory implications before forming a partnership for practicing nursing in California.

Key Features of Partnerships for California Registered Nurses and Nurse Practitioners

A California General Partnership is formed when two or more individuals agree to engage in a business together for profit, without formally organizing another form of business entity. Partners share ownership, responsibilities, profits, and liabilities equally unless otherwise agreed upon through a written partnership agreement. Importantly, in California, general partnerships do not require registration with the state to be established, but they must comply with local licensing and regulatory requirements applicable to the practice of nursing. Partners of a California General Partnership have joint and several liability for all debts, liabilities, obligations, and legal judgments against the California General Partnership.

Tax Considerations of Partnerships for Practicing Nursing

One of the main considerations when choosing between these a partnership for a nursing practice is the tax implications.

Partnerships are subject to pass-through taxation, a process that allows the income, deductions, and tax credits of the partnership to “pass through” to the individual partners rather than being taxed at the business entity level. This means that the partnership itself does not pay federal income taxes. Instead, each partner reports their share of the profits or losses of the partnership on their personal income tax return, based on their ownership interest.

In addition to income taxes, partners of a partnership are generally considered self-employed for tax purposes. This designation requires them to pay self-employment taxes, which cover Social Security and Medicare contributions. Unlike employees, who split these taxes with their employer, self-employed individuals are responsible for the full tax rate, currently 15.3% of net earnings. The self-employment tax liability of each partner is calculated based on their share of the net income of the partnership.

It is crucial for registered nurses and nurse practitioners considering a partnership business structure for their nursing practice to understand the income tax and self-employment tax obligations of partnerships and plan accordingly, as these taxes can significantly impact personal income tax liability.

Is a Partnership Right for You?

While a partnership may offer simplicity and independence, it is essential to weigh the potential risks and benefits relative to other business structures, such as California Professional Nursing Corporations. Registered nurses and nurse practitioners should assess their long-term business goals, liability exposure, and the administrative requirements when selecting a business entity for their nursing practice. For more detailed guidance on California General Partnerships for licensed professionals in California, consult “What are the Business Structure Options for Nursing Group Practices in California?” or schedule a consultation with the experienced corporate attorneys at San Diego Corporate Law to ensure compliance and alignment with your professional objectives.

California Professional Nursing Corporations for California Registered Nurses and Nurse Practitioners

In California, registered nurses and nurse practitioners have the option to form a California Professional Nursing Corporation with the California Secretary of State as the business entity structure to practice nursing in California. A California Professional Nursing Corporation is a specialized type of California Corporation that is specifically designed for registered nurses and nurse practitioners.

Key Features of California Professional Nursing Corporations for California Registered Nurses and Nurse Practitioners

One of the main advantages of forming a California Professional Nursing Corporation is that it offers personal liability protection for the registered nurse or nurse practitioner shareholders who own the California Professional Nursing Corporation. This means that all debts, liabilities, obligations, and legal judgments against the nursing practice that are not subject to a personal guaranty or based on malpractice or professional errors and omissions will stay with the California Professional Nursing Corporation and not flow to the registered nurse or nurse practitioner shareholder (see: “What Liability Protection Does a California Professional Nursing Corporation Provide?“).

However, there are certain restrictions on who can own and manage a California Professional Nursing Corporation which require only registered nurses and nurse practitioners and certain licensed persons permitted under California Corporations Code Section 13401.5 to be shareholders (see: “Who May Be a Shareholder of a California Professional Nursing Corporation?“).

Tax Considerations of California Professional Nursing Corporations for Practicing Nursing

Forming a California Professional Nursing Corporation can also provide tax benefits to registered nurse or nurse practitioner shareholders (see: “What Tax Benefits Does a California Professional Nursing Corporation Provide?“). For example, a California Professional Nursing Corporation can make an S Corporation election, which allows for pass-through taxation (see: “Can a California Professional Nursing Corporation Be an S-Corp?“). Electing to be taxed as an S-Corp means that the profits and losses of a California Professional Nursing Corporation are passed through to the personal tax returns of the individual shareholders rather than being subject to double taxation at both the corporate and individual level.

Additionally, California Professional Nursing Corporations do not subject registered nurse or nurse practitioner shareholders to self-employment taxes, and registered nurse or nurse practitioner shareholders who also provide nursing services must only pay payroll taxes on that portion of their income from the California Professional Nursing Corporation that are paid as W-2 wages.

It is important for registered nurses and nurse practitioners to consult with a tax advisor when considering forming a California Professional Nursing Corporation, as both the personal financial situation of the registered nurse or nurse practitioner shareholder and pro forma professional practice financials of each registered nurse or nurse practitioner will be factors in determining if a California Professional Nursing Corporation is the most tax efficient structure to use when practicing nursing in California.

Is a California Professional Nursing Corporation Right for You?

Based upon limited liability protection and tax efficiency, a California Professional Nursing Corporation is the best choice for most registered nurses and nurse practitioners practicing nursing in California.

To assist in the decision about whether a California Professional Corporation (professional service corporation) is the best business entity structure for your providing professional services as a registered nurse or nurse practitioner, see “When to Use a California Professional Nursing Corporation” and “When Not to Use a California Professional Nursing Corporation” for more detailed information about choosing a business entity structure to practice nursing in California.

If you are already practicing nursing in a foreign professional corporation in California, see “12 Steps to Convert a Foreign Professional Corporation into a California Professional Nursing Corporation” for more detailed guidance on moving from a foreign professional corporation to a California Professional Nursing Corporation.

If you are not already practicing nursing in a foreign professional corporation, see “Four Things to Know About Starting Your Nursing California Professional Corporation“, “The 7 Steps for Forming a California Professional Nursing Corporation“, “How Long Does It Take to Form a California Professional Nursing Corporation?” for more detailed guidance on forming a California Professional Nursing Corporation for your nursing practice.

To speak with a corporate attorney knowledgeable in matters of forming California Professional Nursing Corporations, schedule a consultation with the experienced corporate attorneys at San Diego Corporate Law.