Why form a Professional Corporation?
A professional corporation (sometimes referred to as a personal services corporation, or PC) is a structure authorized by state law for licensed professions. These professional corporations are usually similar to regular corporations but have to meet certain special requirements. Generally, the shareholders, directors, and officers must belong to the same profession, and often must provide proof of good standing of their licenses to qualify.
It is important to note that most states vary in their requirements regarding licensing of professional activities, therefore, we encourage you to seek the advice of an attorney if you fall within the "Professional Services" statute of your state.
Unlike a regular corporation, a professional corporation does not absolve a professional for personal liability for her own negligence or malpractice. The main reason why groups of professions choose this organizational structure is that, unlike a general partnership, owners are not personally held responsible or liable for the malpractice of other owners.
What are the benefits of filing as a professional corporation?
Forming a professional corporation provides benefits that include limited liability protection for its owners against the debts and legal obligations of the business, as well as the ability to deduct the cost of benefits it provides to employees and officers.
A professional corporation provides the additional benefit of protecting the owners from the actions or malpractice of the other owners. For example, if a partner in a medical practice causes injury and is later the target of a lawsuit, the other owners personal assets would be shielded. This makes a professional corporation an ideal choice for doctors, dentists and optometrists.
Professional corporations can also sell shares of stock to raise capital, although those shares must be held directly or indirectly by qualified people, either employees who are currently performing professional services for the corporation, retired employees, or their heirs or estates.
What kinds of businesses should form a professional corporation?
To form a professional corporation, a business must meet certain requirements, which can vary from state to state. Professional corporations are limited to businesses who offer professional services that often require state licenses. According to most states, this usually consists of the following activities:
- Medical Services
- Legal Services and Representation
- Accounting and Financial Services
- Architectural Services
- Additional services may be included, depending on your state
You'll need to call your state's corporate filing office (usually the Secretary of State or Corporation Commissioner) to see which professions are required to form professional corporations in your own state. Additionally, some states may require proof of good standing for your state licenses.
What happens when you file a Professional Corporation?
Professional Corporations are formed by filing Articles of Incorporation in the state in which the business will operate. The act of incorporating creates a legal entity. Often there are requirements by the certifying agency overseeing the practice of the professional. The specific language that may be required by the professional's governing board should be included in the Articles of Incorporation for the Professional Corporation.