In California, certain professions are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation.
Professions that are required to be professional corporations include many of those that must have a state license, such as dentists, certified public accountants, doctors, lawyers, optometrists, psychiatrists, and psychologists.
Professional corporations have more restrictions than traditional corporations. For example, with a few limited exceptions, officers, directors and shareholders of a professional corporation must be licensed to conduct the professional activity.
In addition to specified rules governing professional corporations in the California Business and Professions Code, a professional corporation is also subject to the regulations of the applicable governmental agency overseeing the profession in which the professional corporation is engaged.
While professional corporations do not provide liability protection for malpractice, you could have limited liability protection for claims not based on malpractice, such as a slip and fall accidents.
In addition, by forming a professional corporation you may be able to deduct payments for benefit plans, such as disability or health plans or group term insurance.
Finally, you should speak with your CPA or other tax professional about whether there is the potential to have tax savings by forming a professional corporation and then electing to have it taxed as an S corporation.
Disclaimer: This article discusses general legal issues, but it does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Doug Bend expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.