What is a Professional Corporation in California?

Definition of a Professional Corporation

Definition of a Professional Corporation

A professional corporation is a corporation formed under the California state laws in order to practice a particular profession.The following professions may be professional corporations: 
• Accounting (see Bus & P C §§5150–5158);
• Acupuncture (see Bus & P C §§4975–4979);
• Architecture (see Bus & P C §§5610–5610.7);
• Audiology (see Bus & P C §§2536–2537.5);
• Chiropractic (see Bus & P C §§1050–1058);
• Clinical social work (see Bus & P C §§4998–4998.5);
• Dentistry (see Bus & P C §§1800–1808);
• Law (see Bus & P C §§6127.5, 6160–6172);
• Marriage and family therapy (see Bus & P C §§4987.5–4988.2);
• Medicine (see Bus & P C §§2400–2417);
• Naturopathic doctors (see Bus & P C §§367);
• Nursing (see Bus & P C §§2775–2781);
• Optometry (see Bus & P C §§3160–3167);
• Osteopathy (see Bus & P C §§2402–2417, 3600);
• Pharmacy (see Bus & P C §§4150–4156);
• Physical therapy (see Bus & P C §§2690–2696);
• Physician assistants (see Bus & P C §§3540–3546);
• Podiatry (see Bus & P C §§2402–2417);
• Psychology (see Bus & P C §§2907–2907.5, 2995–2999);
• Speech-language pathology and audiology (see Bus & P C §2537.5); and
• Shorthand court reporters (see Bus & P C §§8040–8047).

Articles of Incorporation of a Professional Corporation

In the Articles of Incorporation of Professional Corporations, the specific purpose of the
professional corporation should be specified.

Shareholders and Directors in a Professional Corporation

Generally, only a licensed professional practicing the profession the professional corporation is
engaged in may be a shareholder. Nonetheless, in certain situations, some other licensed
professionals may also hold shares. For instance, all of the following licensed professionals may hold
shares in a medical corporation: licensed doctors of podiatric medicine; licensed psychologists;
registered nurses; licensed optometrists; licensed marriage and family therapists; licensed clinical
social workers; licensed physician assistants; licensed chiropractors; licensed physical therapists, and
licensed acupuncturists and naturopathic doctors.
CA Corporations Code Section 13401.5 contains the list of licensed professionals who may be
shareholders of certain specified Professional corporations, as long as such people’s total share in
the professional corporation does NOT exceed 49% of the total number of shares of the
professional corporation. It is very important to note that the requirement as to whom could be a
shareholder in a particular professional corporation is not uniform. The Code should be carefully
and diligently consulted.

Some Considerations before Incorporation

  • Generally, shareholders of the professional corporation are not personally liable for corporation’s debts, EXCEPT certain payroll taxes and obligations arising from the corporation’s own negligence;
  • NOTE: Professional Limited Liability Companies (LLCs) are NOT allowed in California.
  • The ability to shift to lower corporate tax rates from individual rates could be an advantage.
  • Generally, shareholders may NOT limit their own malpractice liability in corporate form. However, shareholders may limit their personal liability for the malpractice of their associates. Nonetheless, corporate shield won’t protect an individual from personal malpractice or malpractice of those people such individual supervises.
  • Shareholders are personally liable for any obligations that they have personally guaranteed.

SALIENT NOTE

This article NEITHER supplants NOR supplements the breadth or depth of such rarefied topic. In
fact, this article ONLY provides a rudimentary analysis of such esoteric subject matter.
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