How to Form a Professional Corporation in California (2024 Guide)

If you would like to start and learn how to form a corporation in California, there are a few things that you should do now. However, in a professional corporation, professionals must create a special organizational structure to establish a professional or service corporation. Among the appropriate professions to organize a professional corporation in California are accountants, physicians, engineers, architects, and attorneys.

Forming a professional corporation in California or any business organization needs a certain number of steps. In this article, Webinarcare Editorial Team is going to share those steps. Keep in mind that these are general procedures. Depending on local law, it may be modified. For instance, your professional corporation may be subject to city or county-based rules.

What is a Professional Corporation in California?

A professional service corporation (PSC), often known as a professional corporation (abbreviated as PC), is a particular type of organization that is permitted by state law to allow owners of specifically licensed professions to practice in the California. A professional corporation’s owner is answerable for their own negligence or wrongdoing but is not held personally liable for the actions of other owners. The abbreviation PC or P.C. is frequently used to denote professional corporations.

This structure allows professionals to enjoy some of the benefits and protections of a traditional corporation while maintaining their professional status and abiding by the regulations of their respective licensing boards.

LegalZoom is the recommended corporation formation if you are thinking of forming a professional corporation from scratch. However, you can always start an LLC in California, if you changed your mind.

– WEBINARCARE EDITORIAL TEAM

How to Form a Professional Corporation in California

To form a Professional Corporation in California for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Agent for Service of Process, filing the Articles of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an Biennial report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in California, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

• Doctors
• Architects
• Accountants
• Lawyers and others

To provide your service, you must be qualified and have a license. In most cases, you can now form a professional corporation after finishing your studies, passing the exam, and receiving your license. If you work in an industry that does not provide a license or professional certification, you should consider starting an LLC or corporation.

Step 2: Name your Professional Corporation in California

After you have decided to form a professional corporation in California, you must choose a name for your corporation. Here are some pointers to consider when naming your professional corporation.

• The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
• Limit of restricted words that need a license.
• A unique name is needed with no match
• No confusion with a government entity name.

In California, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 60 days. You must file a name reservation application in the California Secretary of State to keep the name.

If not already present, a professional corporation, professional association, service corporation, or professional service corporation must be included in the name. You may register your business under a different legal name if your preferred legal name is unavailable. Once you’ve decided on a name, you can apply for California DBA (doing business as). This way, you can run a clinic or law firm under your name.

Recommended: Unlock your business’s full potential with LegalZoom’s DBA service, providing a hassle-free experience that allows you to focus on what matters most – turning your passion into profit. We recommend –

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Step 3: Choose the California Agent for Service of Process

The next step in forming a professional corporation is hiring a Agent for Service of Process, who accepts legal paperwork for your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in California. Forming a professional corporation for your service will be easier if you have Agent for Service of Process in California.

Alternatively, you can serve as your own Agent for Service of Process if you have the time. Usually, in California, a Agent for Service of Process costs is ranging from $50 – $300. To make it easier, you can hire California Agent for Service of Process Services for your professional corporation.

Webinarcare Editorial Team reviewed some of the Best Registered Agent Services available and provided features with their formation packages as an add-on.

Step 4: File the Articles of Incorporation in California

After you hire a Agent for Service of Process to form a professional corporation, the next step is to file the California Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Agent for Service of Process contact information, should be written. Include the names of all co-owners as well. All owners must demonstrate that they have the necessary licenses to practice the profession in question.

Filing the Articles of Incorporation in California may be done with three ways, online, by mail and in-person. The Articles of Incorporation fee may vary from different state. However, in California, it costs $100 for filing online and by mail. $115 for in person filing. Get the online form from Secretary of State, fill it up, and submit. Don’t refresh the page during the process. It will erase everything. . For offline filing, Send the form by mail to Secretary of State, Business Entities Filings, P.O. Box 944228, Sacramento, CA 94244. Or drop it off in person to 1500 11th St., 3rd Floor, Sacramento, CA – 95814.

Step 5: Write an Operating Agreement in California

An operating agreement in California is a document that contains all of your company’s organizational details. It is optional to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The operating agreement includes information like-

• About Business
• Members and management
• Capital contribution
• Profit Distribution
• Change of membership
• Dissolution

Step 6: Designate the PC Board of Directors in California

The next step is to form the first board of directors for your PC in California. All of the initial directors must provide the owner with their contact information. The owner must keep records and submit them by the California Secretary of State. As a shareholder and owner, you must ensure that a provision for appointing a new director is included in the By-laws. In California, you must have One directors in forming your Professional Corporation.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

Creating comprehensive corporate bylaws requires specific knowledge about the company, its structure, and operations. However, I can provide you with a general outline of what corporate bylaws usually include. It is crucial to consult with California Business Attorney or a legal expert to ensure that your bylaws comply with the laws and regulations governing your jurisdiction and industry.

• Name and Purpose of the Corporation
• Registered Office and Agent
• Shareholders
• Board of Directors
• Officers
• Committees
• Indemnification and Insurance
• Conflict of Interest
• Records and Reports
• Amendments
• Miscellaneous

Step 8: Hold the First Board of Directors’ Meeting

Gather the board of directors for the first meeting after drafting the corporate bylaws. This meeting will conclude with the appointment of directors to manage the company’s daily operations, approval of the bylaws, selection of the corporation’s financial reporting year, and approval of the stock issue. Minutes should be taken at all board meetings and kept with the company’s records.

Step 9: Request an EIN in California.

After the operating agreement’s documentation, you should get or request an Employer Identification Number (EIN) in California. The tax ID for your professional corporation will be an EIN. The Internal Revenue Service can provide an EIN (IRS). It has nine digits and is comparable to a social security number. Nevertheless, EIN is different from SSN. Only business-related tasks, primarily filing general taxes, are performed using it. The form needs to be filled out and submitted online to the IRS.

The application of an EIN in California can be through the following:

• Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
• Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in several ways. It will give your professional corporation the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

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Step 10: Open a Bank Account and Prepare for Taxes.

You should open a business bank account as soon as you have applied for and received your Employer Identity Number because you will use this account for yourself, your clients, and your staff. Check out the Best Banks in California for you to decide on which bank you are going to open an account.

Due to your organization’s increased legality and liquidity, having a US business bank account may make conducting business in California easier. Most banks require an EIN for businesses other than sole proprietorships to open a business bank account. Also, keeping your accounts separate will prevent you from merging your personal and business finances. Also, filing taxes is simpler when you have an EIN. You can expect to pay employee and corporate taxes when you form a professional corporation.

Step 11: Get a Business License in California

Before your professional corporation operates in California, you must have California Business License first. A business license is a formal document issued by a state government agency that allows you to conduct business in the geographic area governed by that agency. The cost of business licenses and permits in California ranges from $50 – $300. You must check with the local authorities to see if any special licenses or permits are required.

Step 12: File Your Taxes in California

Finally, you’ve arrived at the final process. Remember to file your taxes when you have obtained a business license and are ready to begin operations. To avoid a large tax bill, you should begin paying taxes quarterly as soon as possible. Each state has different tax requirements. Start examining the California tax classification for the taxes that an LLC in California must pay.

Main Characteristics of a Professional Corporation

In forming a Professional Corporation, the main characteristics must be distinguished before forming it. These are the general characteristics of forming a Professional Corporation in California.

• Limited Liability Protection: A professional corporation provides its owners, shareholders, or members limited liability protection like a regular corporation. This means the shareholders’ personal assets are generally protected from business debts, obligations, and lawsuits, except in malpractice or professional negligence cases.
• California Licensing Requirements: All shareholders must typically be licensed professionals in the same field in a professional corporation. The corporation must also comply with specific state regulations and licensing requirements that govern the profession.
• Governance and Management: A professional corporation is governed by a board of directors, who the shareholders elect. The board appoints officers to manage the day-to-day operations of the corporation. All directors and officers must be licensed professionals in the same field as the corporation.
• Taxation: Professional corporations are taxed as C corporations, where the corporation pays taxes on its income, and shareholders pay taxes on dividends received from the corporation. However, some professional corporations may be eligible for S corporation status, allowing pass-through taxation. Income, losses, deductions, and credits flow to the shareholders, who report this information on their income tax returns.
• Restrictions on Ownership and Transfer of Shares: Professional corporations often restrict the ownership and transfer of shares to ensure that only licensed professionals in the same field can become shareholders. This helps maintain the professional nature of the corporation and adheres to state licensing requirements.
• Malpractice Liability: While a professional corporation provides limited liability protection for general business debts and obligations, it does not shield shareholders from liability for their own malpractice or professional negligence. Shareholders can still be personally liable for their actions in providing professional services.

In summary, a professional corporation is a specialized corporate structure designed for licensed professionals, offering limited liability protection and a formal governance structure while adhering to state licensing requirements and regulations.

Maintain Professional and Business License in California

You must maintain or renew your professional license regularly now that you have established your professional corporation. Even if your company is well-established, it is only meaningful if you have a valid operating license. And it makes no difference if your professional license is still valid for a year or two, but your business license has already expired.

Make time at least once a year to check the status of your licenses. You won’t miss anything important this way. You can address any issues that arise.

Filing Biennial Report in California

In California, you must submit a report. The owners’ and Agent for Service of Process’s names and contact details are listed in the Biennial Report. Also, it should include all of your yearly financial activity. You must submit the report every 2 years (on the anniversary date/month) in the California Secretary of State.

FAQs

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How to Save Money While Forming California Professional Corporation

One of the most important ways to save money when forming a professional corporation is to do thorough research before starting the process. Take the time to understand the requirements and regulations for forming a professional corporation in California. By doing your homework upfront, you can avoid costly mistakes and delays that can result in additional expenses down the line.

Another way to save money is to take advantage of online resources and tools. Many websites offer affordable services that can help you prepare and file the necessary paperwork for forming your professional corporation. These online services often come with step-by-step instructions and support to help you navigate the process more efficiently and at a lower cost than hiring a lawyer or accountant to assist you.

Consider whether you really need to hire professional assistance for forming your professional corporation. While the expertise of a lawyer or accountant can be valuable, it can also come with a hefty price tag. If you have a good understanding of the requirements and are comfortable navigating the process on your own, you may be able to save money by handling the formation of your professional corporation yourself.

When filing the necessary paperwork to form your professional corporation, consider whether you need to expedite the process. Expedited filing options are available in California for an additional fee, but if you have a bit more time to spare, you can save money by opting for standard processing times.

Additionally, consider whether you really need to hire a registered agent service for your professional corporation. While the role of a registered agent is important for legal compliance, you may be able to serve as your own registered agent and save money on the annual fees associated with using a third-party service.

Once your professional corporation is up and running, there are additional ways you can save money on ongoing expenses. Consider whether you really need to hire outside professionals for accounting, legal, or other services. Depending on the complexity of your business operations, you may be able to handle these tasks internally or with the help of affordable software solutions.

Overall, saving money while forming a professional corporation in California requires careful planning and consideration of where you can reduce costs without sacrificing the quality of your business operations. By doing your research, taking advantage of online resources, handling some tasks on your own, and carefully evaluating ongoing expenses, you can successfully establish your professional corporation without breaking the bank.

Conclusion

In conclusion, forming a professional corporation in California is a strategic decision for licensed professionals who seek to combine their expertise and services under a single corporate entity. This business structure offers limited liability protection, a formal governance structure, and compliance with state licensing requirements. However, it also comes with certain restrictions on ownership, transfer of shares, and personal liability for professional malpractice. By carefully considering the advantages and disadvantages of a professional corporation, professionals can determine whether this structure aligns with their business goals, regulatory requirements, and risk management needs, ultimately contributing to a more organized, secure, and compliant professional practice.