The above professionals have state licenses and are regulated by a state board.

Who can own a California professional corporation?

• Psychologists
• Psychiatrists
• Audiologist
• Nurse
• Speech pathologist
• Optometrist
• Chiropractor
• Marriage and family therapist
• Doctor
• Pharmacist
• Dentist
• Veterinarian
• Accountant
• Lawyer
• Architect

These professions should register their business as a professional corporation taxed as an S-corporation instead. Each profession will have specific requirements for forming a professional corporation.

If you do not form your professional corporation properly, the secretary of state may reject it, and you might be vulnerable to fines and lawsuits. Your state professional regulatory board may also discipline you.

Professional Corporation Definition

Under California Corporation Code 13401: “Professional corporation” means a corporation organized under the General Corporation Law or pursuant to subdivision (b) of Section 13406 that is engaged in rendering professional services in a single profession, except as otherwise authorized in Section 13401.5, pursuant to a certificate of registration issued by the governmental agency regulating the profession as herein provided and that in its practice or business designates itself as a professional or other corporation as may be required by statute. However, any professional corporation or foreign professional corporation rendering professional services by persons duly licensed by the Medical Board of California or any examining committee under the jurisdiction of the board, the California Board of Podiatric Medicine, the Osteopathic Medical Board of California, the Dental Board of California, the Dental Hygiene Board of California, the California State Board of Pharmacy, the Veterinary Medical Board, the California Architects Board, the Court Reporters Board of California, the Board of Behavioral Sciences, the Speech-Language Pathology and Audiology Board, the Board of Registered Nursing, or the State Board of Optometry shall not be required to obtain a certificate of registration in order to render those professional services.

Why Are Professional Corporations Taxed as an S-Corporation?

The default for a professional corporation is to be taxed as a C-Corporation which pays federal taxes on company profits. You would also need to pay personal taxes on your salary, dividends, or bonuses from the corporation. If you elect to be taxed as an S-Corporation, then it will become a pass-through tax entity. This means that losses from the business will be passed onto your income tax return and therefore offset your income. You also will not need to pay self-employment taxes on additional profits such as dividends on top of your salary.

What Are the Requirements of California Professional Corporations?

The only requirement of a professional corporation is that all shareholders be licensed in that profession. This is to ensure that only knowledgeable professions are making business decisions.

California Professional Corporation Name Requirements

Each profession has very strict name requirements for professional corporations. You must follow the rules of the governing board and licensing agency for your profession. Here are some of the things you have to follow when naming your professional corporation.

1. Make sure the name of your professional corporation is distinguishable from the names of other businesses. Check the California Secretary of State register.
2. Conduct a trademark search if you plan on trademarking the business.
3. Check the name requirements for your profession to see if there are any words that must be included in your business name.
4. Check if there are suffix requirements for your profession.

Which Professions Must Be Formed As Professional Corporations

The following professions must be formed as a professional corporation, not a corporation or LLC in California.

• Psychologists
• Psychiatrists
• Audiologist
• Acupuncturists
• Chiropractors
• Nurse
• Speech pathologist
• Optometrist
• Marriage and family therapist
• Clinical social workers
• Doctor
• Pharmacist
• Podiatrists
• Dentist
• Physician assistants
• Dental hygienists
• Veterinarian
• Accountant
• Lawyer
• Architect

If you earned a degree from the following graduate schools, then you need to form your business as a professional corporation:

• Medical Board of California
• The Dental Board of California
• The California State Board of Pharmacy
• California State Board of Optometry
• California Board of Registered Nursing
• Physician Assistant Board of State of California
• California Board of Psychology
• Osteopathic Medical Board of California
• Speech-Language Pathology and Audiology Board
• Dental Hygiene Committee of California
• Board of Podiatric Medicine
• The Board of Behavioral Sciences (BBS)
• The State Bar of California
• Court Reporters Board of California
• California Board of Accountancy (CBA)
• The Veterinary Medical Board
• California Architects Board

Can a Professional Corporation Be an S-Corporation?

You should form your professional corporation as an S-Corporation

This is a specific type of corporation that avoids the double taxation of regular corporations. Some losses and profits can be passed onto your personal income so that you can offset profits and therefore reduce the tax paid. Therefore, if you are a self-employed professional, you should form your business as an S-Corporation. You will be able to avoid self-employment tax, and therefore save up to 15.3% of your income.

A professional corporation will be taxed as a C-Corporation unless you file a Form 2553 with the IRS. Ask your business lawyer to help you with this.

Advantages of a California S Corporation

• Avoids self-employment tax, and therefore saves up to 15.3% of your profits
• Being taxed similar to an LLC and avoiding double taxation
• Use business losses to offset personal income tax

Can I Form My Professional Business As an LLC?

In California, a professional business will not be able to form an LLC. You must form your company as a professional corporation if you offer professional services.

Can I Form a Professional Corporation If I Am a Disqualified Person?

If you have become disqualified from conducting your professional service, then you are not able to create a professional corporation. You will also not be able to be a shareholder, officer, or director of a professional corporation.

How Do I Form a Professional Corporation In California?

Here are 11 steps on how to form a California professional corporation.

1. File the Articles of Incorporation with the California Secretary of State
2. Notify the State Agency That Governs Your Profession
3. Hold a Board of Directors Meeting and Officially Appoint Directors
4. Ask Your Attorney to Draft Corporate Bylaws
5. Apply For an EIN
6. File a Statement of Information
7. File IRS Form 2553 To Make Your Company an S-Corporation
8. Pay California Corporate Taxes
9. Register With the EDD If You Plan To Hire Employees
10. Apply For Local Licenses and Registration
11. Hire a Business Attorney To Ensure You Are Compliant

1.      File the Articles of Incorporation

You must file Articles of Incorporation with the California Secretary of State when forming a professional corporation. They must include

• Corporation name
• Business address
• Name and Address of service of process
• Number of shares
• Purpose statement
• Signature and Date

2.      Notify the State Agency That Governs Your Profession

You need to notify the agency that governs your profession that you are operating under your business’s name. Some professional agencies may have an application process as well.

3.      Hold a Board of Directors Meeting and Officially Appoint Directors

It is time for your first meeting of the Board of Directors. This is where you will set up how the company will run, and you should cover things like:

• Write bylaws
• Authorize the issuance of stock
• Adopt a stock certificate form
• Adopt a corporate seal
• Establish the fiscal year from the business

You should take corporate minutes to record the decisions you made during this meeting.

If you are the sole shareholder, you can draft and sign your corporate bylaws. Every director, officer, and the shareholder must be licensed to perform the corporation’s professional activity. In California, a professional corporation must have at least 3 directors on the board of directors.

The Incorporator’s Statement Form should be completed in this meeting too. This form shows the names and addresses of the directors at the beginning of the company. Californian corporations should have at least three directors on their board. If the number of directors is less than three, then the number of directors must be the same or more than the number of shareholders.

4.      Ask Your Attorney to Draft Corporate Bylaws

This is a corporate document that lays out the day to day operations of the company. It will cover the number of directors, how they function, how they are elected. It also will cover offices, shareholder meetings, and big issues for the company.

Bylaws are maintained in the company rather than being filed with the CA Secretary of State. The function of bylaws is to clearly lay out the operating rules for the company and avoid future disputes. They also show lenders, creditors, and the IRS that your company is legitimate and are vital to personal liability protection. Ask an attorney to help you draft the bylaws. Most professional boards require certain kinds of language in their bylaws.

5.      Apply For an EIN

Your EIN (tax ID number) is required to start a business. The IRS issues EIN, and they function a little like a social security number. An EIN will allow you to:

• File taxes
• Open a business bank account
• Hire employees
• Apply for business licenses and permits

6.      File a Statement of Information

California requires corporations to file a Statement of Information within 90 days of registering. Every corporation must also file one every year or if there is a change to the business address or Registered Agent address.

A Statement of Information keeps the state up to date with the contact information of the professional corporation.

7.      File Form 2553 To Make Your Company an S-Corporation

Filing as an S-Corporation will avoid the double taxation that a regular corporation has. An S-Corporation avoids the self-employment tax which works out to 15.3% of your income. To become an S-Corporation you must file Form 2553 with the IRS within 2 months and 15 days before the tax year begins. If you file it later, then the election will be in place for the next tax year.

8.      Pay California Corporate Taxes

All professional corporations must pay taxes to the California Franchise Tax Board. The minimum tax is $800 annually. These must be paid during the first quarter of every accounting period, regardless of whether the corporation is active or not, or profitable or not. You pay it in advance for each year.

File your Franchise Tax immediately after registering your corporation, so you do not forget to pay them. The state will charge late fees, penalties and may even dissolve your corporation if you forget to pay this tax.

9.      Register With the EDD If You Plan To Hire Employees

If you hire employees, then you must register with California’s EDD as an employer. You also need to pay payroll tax in California, even if the president is the sole employee.

Once you register with the EDD, you will need a SEIN. We recommend talking to an accountant about your payroll.

10.  Apply For a Local License and Registration

Along with all the federal and state regulations, you need to register with the city and perhaps the county where you will operate the business. This will vary depending on the profession and the area you are in.

Sometimes it will be as easy as submitting a form to the city. Unfortunately, some registrations could require you to seek approval from local government agencies.

Consult with your attorney before you formally open your business to ensure you have complied with all local requirements.

11.  Hire a Business Attorney to Ensure You Are Compliant

Misfiling your corporation documents can be an extremely serious issue. It could lead to business problems, like insurances not covering you or penalties from the professional governing board. Having a business attorney on your side can help ensure you get it right the first time and avoid a lot of dramas.

Professional Corporation For Attorneys and Lawyers

Professional corporations for law professionals are regulated by the California Rules of Professional Conduct and the California State Bar.

The professional corporation’s name cannot include the suffixes LLC, APLC or PLC.

You must only practice law under the name that you filed with the State Bar records. And you must state that your purpose is the law on the articles of incorporation.

Your corporation name must include the ending, like:

• Law Corporation
• A Professional Law Corporation
• A Professional Corporation
• Professional Corporation
• APC
• PC
• C
• P.C
• Corp.
• Professional Legal Corporation
• A Professional Legal Corporation
• Incorporated
• A Legal Corporation
• C
• Limited
• Professional Association
• A
• Corporation
• A California Professional Corporation

Professional Corporation for Dentists

A dental corporation must be licensed by the Dental Board of California. If you plan to file your professional corporation under a fictitious name, then you need to file a fictitious business name in the country you will be treating patients.

The corporation must contain the last name of a shareholder, whether present, prospective, or former. It must also contain one of the following words:

• Professional Corporation
• Corp
• Dental Corporation
• Corporation
• Inc
• Incorporated

Professional Corporation for Physicians and Doctors

In order to have a medical professional corporation, you need to have a license from the Medical Board of California. At least 51% of the shares of the company must be owned by a licenses surgeon or physician. Partners can only be podiatrists, osteopaths, or physicians.

If you plan to use a fictitious business name, then you must have pre-approval from the Medical Board of California.

Professional Corporation for Accountants

You must have a license from the CBA to form an accountant’s professional corporation. At least one of the shareholders must have an active PA or CPA license. The business name on the articles of incorporation must be the same as the name on the marketing application.

Professional Corporation for Veterinarians

Shareholders must have a license to practice veterinary medicine in California. An officer, professional, or director can handle other licenses as long as they do not own more than 49% of the company.

Veterinarian professional corporations have a lot of flexibility for the name, but they must contain the word Corp, Inc, Incorporated, or Corporation in the name as well as Veterinary.

Professional Corporations for Pharmacists

All pharmacists must form a pharmacy corporation. The name must contain the words pharmacy, pharmacist, or pharmaceutical. It also must contain inc, corp, incorporated, or corporation.

Every officer, director, or shareholder, must be licensed as defined in Section 13401 of the Corporations Code. The exception is assistant treasurer or assistant secretary.

Professional Corporation for Audiologists

Audiologists must form a professional corporation and be licensed by the Audiology Board.

All professional corporation names must include one of the following words:

• Hearing therapist
• Audiology
• Hearing clinic
• Audiologist
• Hearing clinician
• Audiological

Professional Corporations for Chiropractors

Chiropractors must form a professional corporation to operate in California.

You must not use a fictitious name, but they must include the following elements:

• At least the surname of a former, present, or prospective shareholder
• The word corporation or a word that shows it is a corporation
• The word chiropractic

You must also submit your Certificate of Registration to the California Board of Chiropractic Examiners.

Professional Corporation for Optometrists

Optometrists must form a professional corporation. The name must have at least one owner’s name, who must be the optometrist.

A licensed optometrist must own at least 51% of the shares. Another licensed person can own the other 49% of the shares.

Professional Corporation for Podiatrists

A podiatrist must form a professional corporation and register it with the Medical Board of California, the California Secretary of State, and the American Board of Pediatrics.

The corporation name must contain at least the last name of a shareholder, even prospective or future shareholders. It must also include one of the following endings:

• PC
• C
• Inc
• Corporation
• Podiatry Corporation
• Podiatrist
• P.M
• Incorporated
• P.C
• Corp.
• A Professional Corporation
• APC
• Podiatrist
• Doctor of Podiatric Medicine
• Podiatry Corp.

Professional Corporation for Physician Assistants

PAs must form a professional corporation to limit liability against lawsuits and creditor. It will also reduce the shareholders’ self-employment tax and allow you to build corporate business credit.

The business name must contain one of the following corporate endings:

• APC
• PC
• P.C
• C
• Inc
• Corp.
• Incorporated
• Professional Corporation
• A Professional Corporation
• Corporation

Professional Corporation for Nurses

Nurses in California must form a professional corporation as a business entity. You may use a fictitious name as long as the name contains the words registered nursing or nursing. The name must also include the words Corp, Inc, Corporation, or Incorporated.

Professional Corporation for Speech-Language Pathologists

Speech pathologists must form a professional corporation and it must be licensed by the Speech-Language Pathology Board of California.

The name of the professional corporation must include the following words:

• Speech pathology
• Speech pathologist
• Speech correction
• Speech therapy
• Speech clinic
• Speech therapist
• Speech correctionist
• Language pathologist
• Speech clinician
• Language pathology
• Logopedist
• Logopedics
• Communicology
• Aphasiologist
• Communicologist
• Voice therapist
• Voice therapy
• Voice pathologist
• Voice pathology
• Phoniatrist
• Language therapist

Professional Corporation for Engineers

In limited situations, engineering practices can be an LLC, but we recommend a professional corporation as it limits personal liability, avoids double taxation, and allows you to obtain business credit.

Engineering professional corporations must have the name of a licensed engineer, licensed architect, registered geologist, or a licensed land surveyor.

A professional corporation is allowed to have a DBA or fictitious name.

Professional Corporation for Architects

There are many benefits to professional corporations for architects. It will limit personal liability, avoid double taxation, and will allow you to obtain business credit easily.

The corporation name must contain at least the last name of a former, prospective, or present shareholder or someone who was associated with a predecessor.

It must also include one of the following words:

• Architect
• Architectural corporation
• Architects

As well as Inc, Corp, Incorporated, or corporated.

Professional Corporations for Physical Therapists

Physical therapists must form a professional corporation. Every director, officer, and the shareholder must be licensed as per Section 13401 of the Corporations Code. The exceptions are assistant treasurers and assistant secretary.

The name must contain the words physical therapist or physical therapy as well as Inc, Corporation, Incorporated, or Corp.

Professional Corporations for Family Therapists

Marriage and family therapists must have a professional corporation. The corporation name must have at least one of the words child, family, or marriage as well as the words therapy, counselling, therapist, and counsellor. They must also tell their clients that they are doing business as a marriage and family corporation.

Professional Corporation for Clinical Social Workers

Clinical social workers must open professional corporations. The corporation name must include the words licensed clinical social worker. It must also contain the words inc, incorporation, Corp, or corporation.

You can do business under a fictitious name as long as that name isn’t deceptive, misleading, or false. You must also tell clients that the business is a licensed clinical social worker corporation before you start treatment.

Professional Corporation for Psychologists

Psychologists must operate as a professional corporation. You must tell clients that you are doing business as a licensed clinical social worker. The name of your corporation must include the words inc, Corp, Incorporated, or Corporation.

Your corporation name must also include one of the following words:

• Psychological
• Psychology
• Psychometrics
• Psychologist
• Psychometry
• Psychotherapy
• Psychoanalysis
• Psychoanalysts
• Psychotherapists
• Psychometrists
• Psychology consultant
• Psychology consultation

What to Do Next

If you are a professional, you need to speak to an attorney to help you set up your professional corporation. The article gives a basic overview of the steps to form a professional corporation, but it is a complex process, and legal help is advised. You are already a busy professional and do not need more things on your plate.

Call Nakase Wade and let our business attorneys help you set up your professional corporation and ensure it is done correctly from the start. This will avoid any legal headaches and huge fines or penalties in the future.