How does a professional service form a business?

You have worked hard—you put in the schooling, the testing, the practice. Finally, you have received your license to
practice in California, and you are ready to start your business! So, you start taking the steps to form a business
entity.
Or maybe you are a business person who wants to invest in a corporation that will be operated by a professional. You
don’t know how and don’t care to actually be a doctor, dentist, or lawyer—but you want to help run the business and
grow it. You are ready to invest with a professional who does have the skills and license to form your own business
entity in this field. Can you do it all? What are your options?
In either scenario, as you start to set up the business you will begin by considering different entity’ choices.
You’ve heard of an LLC
and an LLP, you’ve heard of an S-Corp and a C-Corp,
but you’re not quite sure how and where a Professional Corporation fits into the picture. Whether you are practicing
the profession or simply want to share in the ownership of such a business, understanding a professional corporation
can be the difference between a wasted investment and failed business or a successful and legal corporation.

What Is a Professional Corporation?

A professional corporation is a corporation that provides professional services in a single profession and is
organized under the General Corporation Law. In many instances, the rendering of their services is provided legally
in accordance with a certificate of registration that is issued by the regulatory governmental agency for the
profession. The practice or business of this profession under a certificate designates itself as a professional or
other corporation.
Chiropractic is a good example. There are multiple steps to the process. If you want to practice chiropractic, you
can’t just put an adjusting table in your garage and tell everyone from the neighborhood to come for an
adjustment—legally anyway. What you need to do is go to Chiropractic School and sit through all the Chiropractic
boards. And if you successfully pass the boards—you have to obtain a license to practice Chiropractic from the
California Board of Chiropractic Examiners—the regulatory governmental agency for the profession. This is followed
by forming a professional corporation and then applying for a Certificate of Registration from the Board.

So, what does Professional Services mean?

“Professional services” refers to any type of professional services that requires certification, license, or
registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act in order
to be carried out legally.

What does a “Licensed Person” mean?

It means a person who is licensed under the provisions of the Business and Professions Code, the Chiropractic Act,
or the Osteopathic Act to render the same professional services as will be rendered by the corporation of which they
are, or intend to become, an officer, director, shareholder, or employee.

Does every professional have to obtain a Certificate of Registration from their Board in California?

Not necessarily. Professionals that are not required to obtain a certificate of registration to offer their
professional services when operating a corporation are those licensed by the following boards:

1. Medical Board of California or
   any examining committee under the jurisdiction of the board;
2. Osteopathic Medical Board of California;
3. Dental Board of California;
4. Dental Hygiene Committee of California;
5. California State Board of Pharmacy;
6. Veterinary Medical Board;
7. California Architects Board;
8. Court Reporters
   Board of California;
9. Board of Behavioral Sciences;
10. Speech-Language Pathology and Audiology Board;
11. Board of Registered Nursing; or the
12. State Board of Optometry

Is there a specific California state law that deals with professional corporations in California?

Yes, there are quite a few but the main one is known as the “Moscone-Knox
Professional Corporation Act.” It can be located in the California Corporation Code. Because there are many
other laws that deal with professional corporations, working with a lawyer familiar with these laws is critical in
making sure all your bases are covered.
Once you are licensed and want to form a corporation to practice/run your business—it cannot be a General Stock
Corporation. In the state of California, professionals who wish to perform their professional services and do it
using a business entity are REQUIRED to form a Professional Corporation.

Here is a list of the different types of Professional Corporations in California:

The Difference between an LLC and a PC (Professional Corporation)

Essentially, the difference between an LLC and a PC comes down to the laws: what are you allowed to form for your
business?

Can I form a limited liability company for the purpose of rendering professional services?

This limitation is set out in the California Revised Uniform Limited Liability Company Act. In California
Corporations Code 17701.04(e) it states:
“Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render
professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.”
Similarly, you would be restricted in forming a general partnership to operate your professional business with a
non-licensed individual.
As a licensed professional in California, you may organize your private practice either as a sole proprietorship,
professional corporation, or a registered limited liability partnership.

Does a Professional Corporation protect my personal assets from malpractice?

Professional corporations do not provide a professional with malpractice liability protection for their own
negligent acts, but they can protect the professional from liability for the negligence of other owners. Moreover,
professional corporations also provide limited liability protection for certain other claims (e.g. if somebody is
injured at your place of business).

What prevents me from forming a Professional Corporation?

The most obvious answer here is if you do not have a license or are not legally permitted to practice that
profession. However, this question can also extend into ownership of a company. Only certain licensed individuals
can own or be shareholders of a professional corporation, even if that individual is not performing any of the
professional services. Check out this story about a client we had who was not aware of these specific requirements
for professional corporations:

What if I don’t want to share ownership in my Professional Corporation, but rather I want to employ a related
individual for the professional service (such as a medical professional)?

Even if you only want to employ an individual in your professional corporation, that individual needs to be licensed
(as mentioned in Division 2 of the Business and Profession Code, the Chiropractic Act, or the Osteopathic Act) and
you need to meet the requirements to form a Professional Corporation for them to render professional services. You can learn more through a story about our client who got stuck in a corporation he couldn’t run.

I had a license before but have been disqualified. Am I still able to operate within the requirements for a
Professional Corporation?

If you did have a license and then become a disqualified person, you are ineligible to remain as a shareholder,
director, or officer of the Professional Corporation.
A “Disqualified Person” means a licensed person who for any reason becomes legally disqualified to render those
professional services. This can be temporary or permanent and relates specifically to the particular professional
that the corporation or foreign professional corporation of which the individual may be an owner, shareholder, or
employee.

Forming a Professional Corporation: Limited to One Profession

When you form
a Professional Corporation in California, you must state which specific profession your company/corporation
will be practicing in the Articles of Incorporation. This will be stated as the purpose, in the following language:
The purpose of the corporation is to engage in the profession of [Description of Profession, e.g. Dentistry] and any
other lawful activities (other than the banking or trust company business) not prohibited to a corporation engaging
in such profession by applicable laws and regulations. This corporation is a professional corporation within the
meaning of the California Corporations Code.
Part of the reason for this rule is that each profession has different requirements and restrictions. There is no
‘General’ Professional Corporation. Your company would be formed as a corporation specifically connected to one
profession.

Are there exceptions to the single profession rule?

In order to increase success and revenue, your profession may naturally seek to form partnerships with other related
professionals. A great example of this lies in the medical professions: a chiropractor may wish to share ownership
with a medical doctor, or a medical doctor may want to work with physician assistants and registered nurses.
However, if you are only allowed to reference one specialty, can you work with these individuals under your own
corporation?
The answer is yes, under the correct circumstances. There are discreet and distinct lists, available for each
Professional Corporation, which sets forth who may also be shareholders or owners of that corporation.
For example, if a medical doctor wishes to form a medical corporation with other related medical professionals, that
medical doctor may share ownership in the medical corporation with the following shortlist of related medical
providers:

• (1) Licensed doctors of podiatric medicine.
• (2) Licensed psychologists.
• (3) Registered nurses.
• (4) Licensed optometrists.
• (5) Licensed marriage and family therapists.
• (6) Licensed clinical social workers.
• (7) Licensed physician assistants.
• (8) Licensed chiropractors.
• (9) Licensed acupuncturists.
• (10) Naturopathic doctors.
• (11) Licensed professional clinical counselors.
• (12) Licensed physical therapists.
• (13) Licensed pharmacists.

Are there specific name requirements for professional corporations?

Yes! Please check out your corporation below to know more about naming your professional corporation

Law Corporation

Architecture Corporation

Court-Reporters-Corporation

Accounting Corporation

Pharmacy Corporation

Engineering Corporation

Medical Corporation

Podiatric Medical Corporation

Psychological Corporation

Speech-language Pathology Corporation

Audiology Corporation

Nursing Corporation

Marriage and Family Therapist Corporation

Licensed Clinical Social Worker Corporation

Physician Assistants Corporation

Chiropractic Corporation  

Acupuncture Corporation

Naturopathic Doctor Corporation

Dental Corporation

Professional Clinical Counselor Corporation

Physical Therapy Corporation

Registered Dental Hygienist in Alternative Practice Corporation

Midwifery Corporation