Professional Corporation

A Professional Corporation is a type of corporation formed by licensed professionals—like doctors, lawyers, accountants, and architects—who offer specialized services. A PC provides limited liability protection to its owners (shareholders) and helps maintain professional standards by allowing only licensed individuals to own and operate it.

• Licensed Professionals Only: Professional Corps are set up by individuals who require licenses to practice, such as doctors, attorneys, accountants, or architects.
• Liability Protection: Shields individual shareholders from the corporation’s business liabilities, though each professional is still liable for their own work.
• Distinct from General Corporations: PCs have rules specifically designed for professional practices, such as limiting ownership to licensed professionals.
• Tax Treatment: Much like traditional corporations, PCs are taxed separately from their owners.

A professional corporation (or PC) is a business structure for people working in fields requiring specific licensing. PCs are different from other corporations in that they are created specifically to provide professional services, like medical or legal services. They are designed with state regulations in mind to protect the public and the licensed professionals who run them. For example, in a PC, only licensed lawyers could be shareholders in a law firm, while only licensed doctors could own shares in a medical practice.

Key Features of a PC

1. Professional Requirement: Only licensed professionals can own and manage a PC, ensuring it operates with expertise in the relevant field.‍
2. Limited Liability Protection: While the PC offers liability protection for business-related debts, each professional is responsible for their malpractice or negligence. For instance, a doctor in a medical PC is not personally liable for the practice’s debts but can be held accountable for personal mistakes made while treating patients.‍
3. Continuity and Stability: Professional Corps have a stable ownership structure; the corporation continues to exist even if shareholders leave, retire, or pass away.‍
4. Separate Legal Entity: A PC is a separate legal entity from its owners. This setup makes managing risks, raising capital, and establishing a professional reputation easier.

Why Choose a PC?

• To Limit Personal Risk: PCs provide liability protection for business debts and obligations, protecting individual shareholders’ assets from claims against the corporation.‍
• Professional Control: Licensed professionals exclusively own and control PCs, ensuring that clients receive quality services from qualified individuals.‍
• To Enhance Credibility: A PC adds a layer of professionalism and trust, as it shows clients that licensed experts with regulatory oversight run the business.‍
• To Structure for Growth: As a corporation, a PC can issue shares, making raising capital, attracting investors, or adding partners easier.

Advantages of a Professional Corporation

1. Liability Protection: PCs shield personal assets from corporate debts and liabilities, though each professional remains liable for their own work.‍
2. Increased Professionalism and Credibility: As a licensed professional organization, a PC can help reinforce the quality and trustworthiness of the services offered.‍
3. Continuity: PCs have an indefinite lifespan, which helps with business stability and succession planning.‍
4. Potential Tax Benefits: Depending on the tax election (C corp or S corp), PCs may benefit from tax planning opportunities not available to other business structures.

Disadvantages of a Professional Corporation

1. Malpractice Liability: Although a PC protects liability, professionals are still liable for their malpractice claims. This means professional liability insurance is essential.‍
2. Complexity and Cost: Due to additional regulatory and administrative requirements, forming and maintaining a PC can be more complicated and costly than other business structures.‍
3. Tax Implications: PCs are typically subject to corporate tax rules, which can lead to higher tax obligations if income isn’t distributed efficiently.‍
4. Strict Ownership Rules: Only licensed professionals can own and/or manage a PC, limiting business flexibility.

Forming a Professional Corporation

1. Confirm Eligibility and Licensing Requirements: Check with your state’s regulatory body to ensure your profession qualifies for a PC and confirm that you meet licensing requirements. Our Startup Cost tool is also an excellent place to start.‍
2. File Articles of Incorporation: File your PC’s Articles of Incorporation with the appropriate state agency (usually the Secretary of State). These articles often include details about the corporation’s professional purpose, and some states may require proof of each owner’s licensing. Most states also have strict requirements on naming PCs, so verify any necessary endings and abbreviations available.‍
3. Draft Bylaws: Draft internal rules for managing the PC, which outlines ownership, management structure, and decision-making processes.‍
4. Register with Regulatory Boards: Depending on the profession, the PC may need to register with a professional board, such as a medical or legal board, and meet ongoing licensing requirements.‍
5. Apply for an EIN: Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) to open a business bank account and comply with tax regulations.

States Offering Professional Corporations

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
  • For accountants, attorneys, chiropractic, dentists, medical practice, optometry, physical therapists, podiatry, psychologists, social workers, marriage and family therapists, professional counselors, and addiction counselors.
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Iowa
• Indiana
• Kansas
  • For accountants, architects, attorneys, chiropractors, dentist, engineers, optometrists, osteopathic physician or surgeon, veterinarian, podiatrist, pharmacist, land surveyor, psychologist, clinical social worker, physical therapist, landscape architect, nurse, real estate broker or salesperson, clinical professional counsel, geologist, psychotherapist, clinical marriage and family therapist, physician, physician assistant, occupational therapist, audiologist, and speech pathologist.
• Kentucky
• Louisiana
• Maryland
• Maine
  • Accountants, advanced practice registered nurses, attorneys, chiropractors, dentists, optometrists, osteopathic physicians, physicians and surgeons, physician assistants, podiatrists, registered nurses and veterinarians must form a professional corporation.
• Massachusetts
• Michigan
• Minnesota
  • For medicine and surgery, chiropractic, registered nursing, optometry, psychology, social work, marriage and family therapy, dentistry and dental hygiene, pharmacy, podiatric medicine, veterinary medicine, physician’s assistants, architecture, engineering, surveying, landscape architecture, geoscience, certified interior design, accountancy, and law.
• Montana
• Missouri
• Mississippi
• Nebraska
  • For a attorney-at-law, certified public accountant, public accountant, dentist, osteopathic physician, physician and surgeon, real estate broker, associate real estate broker, real estate salesperson, or veterinarian.
• New Jersey
  • For public accountants, architects, optometrists, ophthalmic dispensers and technicians, professional engineers, land surveyors, land planners, chiropractors, physical therapists, registered professional nurses, dentists, osteopaths, physicians and surgeons, doctors of medicine, doctors of dentistry, podiatrists, veterinarians, and attorneys-at-law.
• New York
• New Hampshire
  • For certified public accountants, public accountants, architects, attorneys, podiatrists, chiropractors, dentists, pharmacists, professional engineers, land surveyors, registered professional nurses, optometrists, physicians and surgeons, physician assistants, psychologists, and veterinarians.
• New Mexico
  • For certified public accountants, registered public accountants, chiropractors, optometrists, dentists, osteopaths, podiatrists, architects, veterinarians, doctors of medicine, doctors of dentistry, physicians and surgeons, attorneys-at-law, and life insurance agents.
• North Carolina
• North Dakota
• Oklahoma
• Oregon
• Ohio
  • For dentists, architects, attorneys and professional engineers, and therapists.
• South Carolina
  • For medicine, law, and accounting.
• South Dakota
  • For medicine, law, and accounting.
• Utah
• Texas
  • For doctors of medicine, doctors of osteopathy, podiatrists, mental health professionals (like psychologists, family therapists, and licensed professional counselors), optometrists, therapeutic optometrists, chiropractors, dentists, or veterinarians.
• Vermont
• Pennsylvania
• Rhode Island
• Virginia
  • For pharmacists, optometrists, practitioners of the healing arts, nurse practitioners, practitioners of the behavioral science professions, veterinarians, surgeons, dentists, architects, professional engineers, land surveyors, certified interior designers, certified landscape architects, public accountants/CPAs, attorneys-at-law, insurance consultants, audiologists or speech pathologists, and clinical nurse specialists.
• Washington
• Wisconsin
• West Virginia
  • For an accountant (CPA), acupuncturist, architect, attorney-at-Law, chiropractor, dentist, engineer, land surveyor, medicine (Physician, Podiatry, Psychiatry), optometrist, osteopathic physicians and surgeons, psychologist, social worker, and veterinarian.
• Wyoming