Home ยป Professional Corporation in California โ€“ Complete Guide

Professional Corporation in California โ€“ 2025 Complete Guide

A professional California corporation is for licensed professionals (doctors, lawyers, attorneys, accountants, architects, engineers, dentists, physical therapists, etc.) It offers limited liability but with stricter rules than regular corporations.

Professional Corporation In Califoinia in 2025

What is a Professional Corporation (PC) in California?

What is a Professional Corporation (PC) in California in 2025

A professional corporation is a type of corporation. It must be filed when the owners have a special license. This is commonly seen with professions such as doctors, lawyers, and sometimes insurance companies. The key requirement is that all owners of the company must hold the same type of professional license.

For example, in the case of a law corporation, every owner within the corporation must have a law license. Non-attorneys are not allowed to own a legal corporation. Similarly, in a medical corporation, every owner must have a doctorโ€™s license to perform medical services. This restriction is intentional, as it ensures that non-professionals cannot own or operate companies in these specialized fields.

Why is a Professional Corporation Required Why is a Professional Corporation Required?

Professional corporations exist to maintain the integrity of certain industries. For example:

  • Non-lawyers are not permitted to own legal corporations.
  • Non-doctors are not permitted to own medical corporations.

This ensures that only licensed professionals can provide services in these fields. To form a professional corporation, the individual must already hold a valid license. For instance, an attorney with a California Bar (CalBAR) license can open a law corporation. The attorneyโ€™s license is then tied to the corporation.

However, the attorney cannot have a co-owner who does not possess the same type of license. For example, an unlicensed individual cannot co-own a law corporation. The same principle applies to other professional fields such as medicine, insurance, or trust services.

Advantages of a Professional Corporation in California

benefits of professional corporation California

There are few advantages of professional corporation in California that are mentioned below: 

  • Limited risk protection for investors and owners.
    โ€ข Responsibility for work safety.
    โ€ข Financial division and tax benefits.
    โ€ข Risk protection for private property and shareholders.
    โ€ข Easy distinction between business personal finances.
    โ€ข Tax-saving advantages including lower income tax rates, S-Corp taxation option, independence tax benefits, and depreciation deductions.
    โ€ข Enhances credibility and prestige, making the business look professional and trustworthy.
    โ€ข Improves market reputation, setting it apart from competitors.
    โ€ข Helps stand out as an expert in the area and cover costs in case of legal trouble.

Steps to Form a Professional Corporation in California

  1. Check with Your Licensing Board: Before starting a professional corporation, reach out to your licensing board. Make sure a professional corporation is needed. For instance, ask if you can operate as a regular corporation or if a professional corporation is mandatory.
  2. To form a Professional Corporation: Start by opening it with the state. This is similar to forming a regular corporation, but you need a professional designation. After you form the corporation, return to your licensing board. Ask them to update your records to include this new company

Structural and Tax Differences

From a structural standpoint, the primary difference between a professional corporation and a regular corporation is the license requirement. In a professional corporation, all owners must hold the same professional license. This requirement does not apply to regular corporations.

From a tax standpoint, professional corporations are treated the same as regular corporations. They can be taxed as either a C corporation or an S corporation, depending on the choice made by the business owners. There are no additional tax requirements specific to professional corporations.

Why Do These Restrictions Exist?

The restrictions on ownership are designed to avoid conflicts of interest and protect the integrity of professional services. For example:

  • If a large company or wealthy individual, like Coca-Cola or a billionaire, were allowed to own shares in a professional corporation, they could create conflicts of interest. For instance, owning shares in a legal corporation might prevent them from being sued due to financial interests in the company.

By limiting ownership to licensed professionals in the same field, these corporations maintain independence and uphold ethical standards.

Key Points to Remember

  1. Professional License Requirement:
    • All owners of a professional corporation must hold the same type of license.
    • For example, medical professionals can only co-own medical corporations, and attorneys can only co-own law corporations.
  2. No Cross-Field Ownership:
    • A professional with a license in one field cannot own a corporation in a different field. For example, a doctor cannot own shares in a legal corporation, even if they have a valid license. Similarly, an attorney cannot co-own a medical corporation.
  3. Taxation:
    • Professional corporations are taxed the same way as regular corporations. They can elect to be taxed as a C corporation or an S corporation.

In summary, a professional corporation is a special type of business. It allows only licensed professionals to own and run companies in specific fields. The main difference from a regular corporation is the need for a license to own it. This rule helps keep things professional and prevents conflicts of interest.

Difference Between Professional Corporation and Other Business Entities

Difference Between Professional Corporation and Other Business Entities

In California, we have different kinds of business forms. Each has its own rules. Here you can easily understand the difference between Professional Corporation (PC) from others.

LLC vs. Professional Corporation

An LLC (Limited Liability Company) is flexible. It allows business owners to control activities as they think suitable. However, in California, professionals such as doctors and lawyers cannot run their businesses by using an LLC.

A professional licensed California corporation is created for only professionals who have a license. It is designed to satisfy the unique demands of various professions.

S-Corp vs. Professional Corporation

An S-Corp is not a type of business. It is a tax classification for certain corporations or LLCs in the U.S. This is not designed only for professionals.

A PC additionally has the option to be taxed as an S-Corp, that can result in tax benefits. While normal S-Corps, PCs have more challenging rules and are only open to individuals with licenses. 

Sole Proprietorship vs. Professional Corporation

A sole proprietorship is one of the basic forms of business. The person who owns it is responsible for everything. There is no differentiation of personal and business risks. This means that if anything goes wrong, private property may be affected. 

A PC gives better protection. It separates the business from personal responsibilities. This helps protect the ownerโ€™s personal things if the business faces legal or financial trouble.

Tax Implications of PCs

A Professional Corporation faces special taxes. It must pay corporate taxes and franchise taxes in California. These taxes are different from other business types.

Requirements for Forming a Professional Corporation in California

Starting a Professional Corporation (PC) in California requires following certain legal steps. Hereโ€™s how to form one.

Eligibility Criteria for Professional Corporations in California

Licensed Professionals

Only people who have a valid professional license can start a PC in California. These professionals include doctors, lawyers, and other licensed workers. Without a license, a person cannot create a PC.

Professional License Requirements

All owners, or shareholders, of the Professional Corporation must have the right licenses for their job. For example, if you are starting a PC for a medical practice, each owner must be a licensed doctor.

California Board of Professional Engineers

Some professional groups, like engineers, are regulated by special boards. These boards make sure that the business follows the rules for their profession. They help keep everything running according to the law and protect the public.

State Law Compliance

A Corporation must follow the rules of the California secretary for professional businesses. These rules help ensure that the business is run properly according to the file with the California secretary.

Restrictions on Ownership

Only licensed professionals can own a PC. Non-professionals are not allowed to have any ownership in the business. This rule keeps the business focused on professionals who have the proper training and licenses.

Residence

One of the most important laws for which a corporation is formed is residence. Starting a California Professional Corporation often implies some rules. One who is going to file the small business corporation must reside in California.

A professional California corporation is for professionals that operate in California. If a lawyer lives in Texas but has a California law license, he must register it in California. The company must be located in California, but he can still live in Texas.

Any Foreign corporation incorporation with the California secretary has to follow general corporation law. Besides this corporation that is based outside of California follows professional practice. 

Steps to Form a California Professional Corporation 

Steps to Form a California Professional Corporation

Creating a Professional Business Corporation in California entails several crucial stages. Here is what you should do:

1. File the Articles of Incorporation

The first step is to submit the Articles of Incorporation. This is currently delivered to the California Secretary of State. It is the paperwork that shows the state that you are setting up a PC.

2. Select a Business Name.

Also, check with your license board. They may have special rules. For example, you might need to include your legal name in your company name. You may also need to clearly state what your business does in the name

3. Complete the filing process.

After selecting a name, you need to submit your paperwork and pay the fee to the Secretary of State. This part concludes your official submission with the government. 

4. Draft Bylaws

Bylaws are the limits that govern the way your PC will be managed. These policies provide rules for professional activity. You have to set and maintain these rules for your company.

5. Get a federal EIN

To pay fees, you need to apply to a professional corporation. This helps for a Federal Employer Identification Number (EIN) from the IRS. This number allows you to identify your company for taxes. 

6. Register with State Board and Connect to License

In California, you might need to register your business with local authorities and the state licensing board. This depends on where you are and what type of business you have. Check with your city, county, and state licensing board. This will help you make sure your business meets all local and professional rules. This is very important if your job needs a license. The company usually has to be linked to your personal license.

7. Secure Permits, Licenses, and Insurance

Finally, you may need specific permits, licenses, and certifications to operate your business. These requirements depend on your profession and the type of service you provide. Additionally, inquire about the insurance required for your industry to protect your business and comply with legal standards. When starting your California business, verify that you have all the permits, licenses, and insurance necessary to operate.

Legal Documents Required for Formation

You need to submit a lot of crucial legal documents at the time of starting a Professional Corporation (PC) in California.  Here’s a checklist of things you must have:

1. Certificate Of Incorporation

This Certificate of Incorporation is an official paperwork that proves your PC’s identity as a legal organization. You can expect this certificate if the Office of the Secretary of State accepts your Articles of Incorporation. It shows that your company has been approved by the state.

File a statement of information

File a statement of information that includes some basic knowledge about your corporation. It must contain the name of a professional corporation and concern of the California department. 

A professional corporation’s name reveals its concern and purpose. This file must adopt the necessary steps for approval as governed by the state. 

2. Professional Liability Insurance.

This kind of insurance is essential for maintaining your company against suggestions of mistakes or issues in your services. This kind of protection helps cover fees if someone thinks they suffered injury as a result of their professional job. 

3. Shareholder Agreements

A Shareholder Agreement is a paperwork that defines the roles, rights, and responsibilities of every owner in the PC. It helps to make sure all staff understands their roles and what they are to anticipate from the company. 

4. Financial Documentation

It means  you need to file a statement of information. Financial Documentation includes documents like bank statements, tax forms, and financial reports. These are needed to show that your PC is following tax and legal rules. Having this documentation helps make sure your business is in good legal standing.

Key Entities in Forming a Professional Corporation in California

Key Entities in Forming a Professional Corporation in California, Lawyers, Doctors, Architects, Accountants, Therapists, dentist, engineers,

Lawyers:

 Only members of the California State Bar can form a Professional Corporation (PC). They must hold a law license.

Doctors:

 A PC can be composed of professional medical doctors, doctors of osteopathy, and other certified healthcare providers. Their duty is managed by the medical board of California.

Dentists with a DDS or DMD degree can form a PC. They need to get qualified by the relevant state dental board of California.

Accountants

Accountants are supervised by the California Board of Accountancy. This includes certified public accountants.

Architects 

Licensed by their respective licensing boards in California. They need special training and certification.

Therapists and Counselors:

Officers of the corporation  are the persons who manage and design  law firm. Treasure of the corporation is managed by these entities. Eligible to form a PC, holding necessary licenses required by California law.

FAQs About Professional Corporations in California

FAQs About Professional Corporations in California.

What is a California Professional Corporation

A California Professional Corporation is a type of corporation designed especially for licensed professionals. These include doctors, lawyers, architects, and many more. It allows them to do business within the regulations of California law and provides liability protection for professional services. A California Professional Corporation must comply with specific state regulations to operate legally.

Is a Professional Corporation the Same as an S-Corp?

No, a Professional Corporation (PC) and an S-Corp are not the same. A PC is a type of business entity, while an S-Corp refers to a taxation status. A California Professional Corporation may elect to be taxed as an S-Corp by filing IRS Form 2553. This helps avoid double taxation, as profits and losses pass through to shareholders’ individual tax returns. This approach is often recommended for professional corporations seeking tax efficiency.

What Are the Disadvantages of a Professional Corporation?

Professional Corporations do not provide protection to personal property beyond business liabilities. PCs require compliance with the Moscone-Knox Professional Corporation Act, which imposes strict rules and regulations. For example, shares in a California Professional Corporation cannot be owned by unlicensed individuals, which limits ownership flexibility. Managing a PC also incurs higher costs compared to other business entities.

Is a PC Better Than an LLC?

A Professional Corporation offers more protection for business and personal property compared to an LLC. In California, licensed professionals often prefer forming a professional corporation over an LLC. This is because most licensing boards prohibit LLCs for professional services in California. Anyone can register an LLC, but a California Professional Corporation must have bylaws. It also needs to follow stricter licensing rules.

How Much Does It Cost to Form a Professional Corporation in California?

To form a California Professional Corporation, you must pay a $100 filing fee. This fee is for the Articles of Incorporation with the California Secretary of State. Additionally, there is a $25 annual Statement of Information fee, due 90 days after registration. The corporation must provide liability protection and meet all state requirements for professional services. You can also register a California Professional Corporation online through the Secretary of State’s website.

What’s the Difference Between an LLC and a Professional Corporation?

An LLC is a flexible business structure that provides limited liability and pass-through taxation. In contrast, a Professional Corporation in California is specifically designed for licensed professionals like doctors and lawyers. PCs must comply with the provisions of the general corporation laws, offering liability protection and adhering to California law. Many states, including California, prohibit licensed professionals from forming LLCs, making professional law corporations a more suitable option.

What is Better, PC or PLLC?

In California, a Professional Corporation (PC) is the best choice for licensed professionals. The state does not allow Professional Limited Liability Companies (PLLCs). A PC offers a formal structure, tax advantages, and compliance with the California Corporations Code. Licensed professionals practicing law or other services should consider forming a California Professional Corporation to meet state regulations.

Can You Convert a Corporation to a Professional Corporation?

Yes, you can convert a California corporation into a Professional Corporation (PC). To do so, you must file an amendment to the Articles of Incorporation with the California Secretary of State. The amendment must rephrase and reword the articles to reflect the entity’s new status as a professional corporation. The corporation is required to ensure that all shareholders are licensed professionals in their respective fields.

What Type of Entity is a Professional Corporation?

A Professional Corporation is a type of business in California. It helps licensed professionals like doctors, engineers, and lawyers. This type of corporation follows the Moscone-Knox Professional Corporation Act. It provides protection for personal and business assets. The corporation must comply with strict licensing and operational rules under California law.

What is the Benefit of IRS Form 2553?

The benefit of IRS Form 2553 is that it allows a Professional Corporation to elect S-Corp status. This allows the corporation to be taxed as an S-Corporation. This helps avoid double taxation. Profits and losses can pass through to shareholders. Electing S-Corp status is a common strategy for licensed professionals in California seeking tax efficiency. This form must be filed with the consent of all shareholders in the professional corporation.

What are the Types of Professional Corporations?

Professional corporations in California can cater to various professions, including law firms, medical practices, and architectural firms. Each type of corporation is required to comply with state-specific regulations and provide professional services in California.

What is the Role of the Secretary and Treasurer in a Professional Corporation?

The secretary and treasurer of a professional corporation play vital roles in ensuring compliance with legal and financial regulations. The treasurer of the corporation oversees financial operations, including maintaining accurate records of income and expenses. The secretary keeps corporate documents and meeting minutes. They also handle filing requirements with the California Secretary of State. responsible for maintaining corporate documents, minutes of meetings, and filing requirements with the California Secretary of State.

Can a Professional Corporation Operate with Only One Shareholder?

Yes, a corporation which has only one licensed professional as a shareholder can operate as a Professional Corporation. However, this corporation is engaged in professional services and must adhere to specific licensing requirements under California law.

How Can a Professional Corporation Adopt Specific Rules and Bylaws?

A professional corporation may adopt bylaws that govern the internal structure and operations of the corporation. These bylaws often explain roles like officers and financial duties. They also ensure compliance with general corporation laws.

What Makes a Professional Corporation Different from a C Corporation?

A C Corporation is the default corporate structure, while a professional corporation is specifically for licensed professionals. Unlike a C Corporation, a professional corporation may also elect S-Corp status to benefit from pass-through taxation.

What Are the Tax Advantages of Electing S Corporation Status?

A professional corporation that chooses S-Corp status is taxed as an S corporation. This lets profits go directly to shareholders without a corporate tax. To elect S Corporation status, all shareholders must consent, and the corporation must meet IRS requirements.

Can Professional Corporations Operate Online?

Yes, a California professional corporation can register and operate online. However, the professional corporation name must comply with California regulations to indicate the nature of the professional services being offered.

What Rules Apply to Licensed Professionals in a Corporation?

A licensed professional in California must meet state requirements to form a professional corporation. The corporation and its shareholders are subject to strict guidelines to ensure only licensed individuals provide professional services.

What Is the Importance of the Moscone-Knox Professional Corporation Act?

The Moscone-Knox Professional Corporation Act governs the formation and operation of professional corporations in California. Under this act, professional corporations should also comply with state licensing and operational standards.

How Many Professional Employees Can a Corporation Have?

A corporation has less flexibility than other business types. However, a professional corporation in California can hire licensed professional employees.

How Do You Form Professional Corporations in California?

To form professional corporations in California, you need to file Articles of Incorporation with the Secretary of State. These articles should state that the corporation must follow the rules of the Moscone-Knox Professional Corporation Act. Only licensed professionals may own shares in the corporation, ensuring compliance with state laws.

How Are Professional Corporations Taxed?

A professional corporation taxed as a C Corporation pays taxes at both the corporate and individual levels. However, electing S-Corp status allows profits and losses to pass directly to the shareholders, avoiding double taxation. Professional corporations in the State of California must meet specific tax filing requirements to maintain compliance.

What Licensing Requirements Apply to Professional Corporations?

A licensed professional in California must create the corporation. All shareholders must also be licensed in the same profession. The corporation is a corporation designed to provide professional services while adhering to California’s strict licensing standards.

What Are the Requirements for Incorporation of a Professional Corporation?

The incorporation of a professional corporation requires filing Articles of Incorporation with the California Secretary of State. These articles must outline that the corporation is a professional corporation providing specific professional services.

Can a Professional Corporation Be Owned by Multiple Shareholders?

A professional corporation within California can have multiple licensed shareholders. These shares in a California professional corporation are restricted to licensed professionals to maintain compliance with California law.

What Is the Role of a Professional Corporation in California Business?

A professional corporation in California supports licensed professionals by providing liability protection and a formal business structure. It operates under the California Corporations Code to ensure compliance with state laws.

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