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

Steve Bennett
Business Formation Expert  |   Fact Checked by Editorial Team
Last updated: 
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Forming a Professional Corporation in California

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-

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.

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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.

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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

What is a professional corporation in California?
A professional corporation (PC) is a type of business formed by professionals such as doctors, lawyers, and accountants in California.
How do I form a professional corporation in California?
In California, you can form a professional corporation by filing Articles of Incorporation, obtaining necessary licenses, and meeting other legal requirements.
Can I form a professional corporation with just one person in California?
Yes, in California, a professional corporation can be owned by one person or a group of licensed professionals.
What type of professionals can form a professional corporation in California?
California allows a variety of licensed professionals to form a professional corporation, including attorneys, accountants, architects, engineers, and healthcare professionals.
What are the advantages of forming a professional corporation in California?
The main advantage of forming a professional corporation in California is the limited liability protection it provides to its owners. Additionally, it can provide tax benefits and credibility to your business.
Are professional corporations allowed to do business outside of California?
Yes, professional corporations can do business outside of California as long as they follow the laws and regulations of the states they operate in.
Can I form a professional corporation if I am not a California resident?
Yes, you can form a professional corporation in California, even if you are not a California resident, as long as you meet the legal requirements.
How is a professional corporation taxed in California?
In California, a professional corporation is taxed on the federal level as a C corporation, and separately on the state level as an S corporation.
What happens if a professional corporation fails to comply with California requirements?
If a professional corporation fails to comply with California requirements, it may face penalties, fines, and even the loss of its license to practice.
How can I protect my personal assets from liabilities of a professional corporation in California?
Forming a professional corporation in California can provide significant liability protection to its owners, but are not completely protected by personal liabilities if they act outside of California laws.
Does a professional corporation in California need to obtain a business license?
Yes, a professional corporation in California needs to obtain a business license for cities or counties where they operate.
How long does it take to form a professional corporation in California?
It takes about two to four weeks to form a professional corporation in California.
Can a professional corporation be converted into a different legal entity in California?
Yes, a professional corporation can be converted into a different legal entity in California by filing the appropriate paperwork or filing attached documents explaining the motive behind the conversion.
Is it mandatory for professional corporations in California to have bylaws?
Yes, bylaws are a requirement for California professional corporations.
Can a professional corporation in California have multiple shareholders?
Yes, a professional corporation in California can have multiple shareholders.
Can a professional corporation in California have different classes of shareholders?
Yes, a professional corporation in California can have different classes of shareholders as long as they meet California legal requirements.
Can a professional corporation in California own other businesses or corporations?
Yes, a professional corporation in California can own other businesses or corporations as long as they meet legal requirements.
Do shareholders of a professional corporation need to be licensed in the same profession in California?
Yes, shareholders of a professional corporation in California need to be licensed and must state the same profession in which their company assumes a practice.
Is annual reporting required for a professional corporation in California?
Yes, the annual reporting requirement of a professional corporation in California is due by the fifteenth day of the third month after a corporation’s fiscal year closes.
What’s is likely to occur if I do not pay the required fees for any reports or filing in California?
If you don’t pay the required fees for any report or filing, you would not be counting out from fines or fees levied by the state that could impact your license.
When is a professional corporation in California allowed to distribute profits?
A professional corporation in California is allowed to distribute profits according to written agreements or fine memoranda.
What is BOE in California and what is needed for a corporation in California to register for it?
BOE stands for the California State Board of Equalization, which regulates state taxes. For a California corporation, you can register online or fill out CalForms BOE-236-B application to register.
Can a professional corporation in California have non-professional employees?
Yes, a professional corporation in California can hire non-voting employees, subject to legal requirements.
How is the dissolution of a professional corporation in California done?
The dissolution of a professional corporation in California is done by filing Form DISS STK.
What is required to open a bank account for a professional corporation in California?
To open a bank account for a professional corporation in California, a company must provide Articles of Incorporation and other legal identification documents.
Can I form a professional corporation and provide a contracting business in California?
Yes, you can form a professional corporation and own a contracting business in California, though obtaining authorizations from different bodies to begin a contracting business is paramount before you begin operations.
Can a professional corporation in California grant contracts in another state?
Yes, a professional corporation in California can theoretically grant contracts in another state, though it is subject to any applicable state law outside of California.
Does a professional corporation in California need a resident agent?
Yes, a professional corporation in California needs a resident agent for it to follow service of process in accordance with the regulations of the state.
Who can form a professional corporation in California?
Any licensed professional, including doctors, lawyers, contractors, architects, engineers and more can form a professional corporation in California.
Do I need to be licensed to start a professional corporation in California?
Yes, all shareholders, officers, and directors of a professional corporation in California must hold a valid license to practice in the profession that the corporation was established to provide.
Can I form a professional corporation with just one director in California?
Yes, California law allows professional corporations to be formed with just one director.
What are the benefits of forming a professional corporation in California?
The benefits of forming a professional corporation in California include reduced liability, tax advantages, and flexibility in management.
How much does it cost to form a professional corporation in California?
The cost to form a professional corporation in California varies based on your profession and the legal services you use to form the corporation.
Do I need an attorney to form a professional corporation in California?
While you can file the necessary paperwork to form your professional corporation on your own, it is highly recommended that you seek the services of an attorney to ensure you avoid legal pitfalls and follow all legal requirements.
How often do I need to hold meetings for my professional corporation in California?
Professional corporations in California are required to hold annual meetings of shareholders.
How many shareholders can a professional corporation have in California?
Professional corporations in California can have an unlimited number of shareholders.
Is there a limit to how many shareholders can be licensed in the same profession within a professional corporation in California?
Yes, in California, the number of shareholders licensed in the same profession that can form a professional corporation is different based on the profession.
How can I determine what licenses are required to form a professional corporation in California?
California legislation determines the professions requiring licensing into a professional corporation.
Can a professional corporation in California be formed for any profession?
No, only certain professions are eligible for forming a professional corporation in California.
Are outside investors allowed to own equity in a professional corporation in California?
No, in California, all shareholders, officers, and directors of a professional corporation must hold valid licenses.
Which agencies regulate professional corporations in California?
Professional corporations in California are regulated by the California Department Consumer Protection of Bureau of Professional Regulations.
How is liability limited for a professional corporation in California?
California law limits the liability of shareholders and directors in a professional corporation to the extent of their ownership interest.
Can a professional corporation in California be taxed as an S corporation?
Yes, professional corporations in California may elect to be taxed as S corporations to take advantage of reduced taxes.
What is the difference between a professional corporation and an LLC in California?
A professional corporation differs from an LLC as a personal service provider organization and prohibits passive income.
What is the process of gaining shareholders for a professional corporation in California?
The process of gaining shareholders for your professional corporation in California is through inviting or adding only those licensed members for the associated profession.
How should profits be distributed in a professional corporation in California?
Profits of a professional corporation should be distributed among shareholders in direct proportion to their ownership shares.
Can I change the profession that my professional corporation serves in California?
Yes, you can file an application with the California Secretary of State to change the profession for which your professional corporation offers services.
What happens if a shareholder loses their license in a professional corporation in California?
If a shareholder loses their license in a professional corporation in California, their stock must be transferred to another qualified shareholder.
How often should I file annual reports for my professional corporation in California?
In California, you must file an annual Statement of Information with the Secretary of State’s Office, depending on your business’s legal structure.
How can I dissolve a professional corporation in California?
To dissolve a professional corporation, you need to file the appropriate forms with the California Secretary of State’s Office and pay applicable fees.
How can I convert my existing business into a professional corporation in California?
You will need to file the appropriate forms for a professional corporation with the California Secretary of State’s Office and meet all legal requirements relating to your profession.
Can I apply for a foreign qualification for my professional corporation in California to do business in another state within the US?
Yes, you can file an application for a foreign qualification for your professional corporation through that related states’ Department of State.
When can I start using my professional corporation’s name in California?
Business names reserved or trademarked conveyed are ready to use behalf of a professional corporation in California. However, certain naming requirements must be followed.

Also Read

How to Save Money While Forming California Professional Corporation

First and foremost, one must take into account the legal requirements and paperwork associated with forming a professional corporation in California. This process can be quite intricate and time-consuming, and seeking professional assistance from lawyers or specialized agencies might seem costly at first glance. However, it is vital to keep in mind that doing everything according to legal requirements from the beginning can ultimately save money in the long run. Paying attention to details and ensuring everything is done correctly will mitigate the risk of facing legal complications down the line, which can result in expensive court battles or fines.

In addition to securing legal counsel, aspiring professional corporation owners can consider taking advantage of various cost-saving practices during the formation process. Firstly, conducting thorough research in advance will prove to be invaluable. Becoming well-versed in the legalities, regulations, and licensing prerequisites can help streamline the formation procedure and avoid unnecessary setbacks. This knowledge will empower entrepreneurs to navigate the paperwork more efficiently and identify potential pitfalls, thus saving valuable time and money.

Choosing the appropriate ownership structure is another significant step toward saving money when forming a professional corporation. Making an informed decision about whether to establish a sole proprietorship, partnership, or limited liability company (LLC) can have a substantial financial impact. Limited liability companies, for instance, often provide liability protection while being subject to less stringent formalities. Fully understanding the pros and cons of different structures will allow entrepreneurs to select the most cost-effective option that suits their specific circumstances.

Moreover, entrepreneurs should consider a comprehensive financial plan. Having a clear and concise budget that encompasses not only the formation costs but also the ongoing expenses of the corporation is crucial for a successful business. By conducting careful research and obtaining accurate estimates of all expenses, entrepreneurs can avoid financial surprises. Incorporating additional wiggle room to account for unexpected costs can also prevent any unnecessary strain on the corporation’s cash flow.

Another vital aspect that should not be overlooked is bookkeeping and accounting. Engaging the services of knowledgeable accountants to handle financial matters can save not only money but also valuable time. These professionals can assist in establishing solid financial practices, ensuring tax compliance, and simplifying the overall process. By outsourcing accounting responsibilities, entrepreneurs can focus their attention on growing their core business operations instead of investing valuable time into understanding intricate financial regulations.

While the formation of a professional corporation in California can undoubtedly be costly, implementing prudent financial strategies from the outset will mitigate the financial burden. Seeking legal counsel, conducting thorough research, selecting the appropriate ownership structure, comprehensive financial planning, and outsourcing accounting tasks are just a few measures to achieve lasting financial stability. Embracing these cost-saving practices will empower entrepreneurs to navigate the complexities of forming a professional corporation successfully, enabling them to embark on their entrepreneurial journey with financial peace of mind.

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.

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