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

If you would like to start and learn how to form a corporation in Pennsylvania, 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 Pennsylvania are accountants, physicians, engineers, architects, and attorneys.

Forming a professional corporation in Pennsylvania 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.

Form a Professional Corporation in Pennsylvania

On this page, you’ll learn about the following:

What is a Professional Corporation in Pennsylvania?
How to Form a Professional Corporation in Pennsylvania
Main Characteristics of a Professional Corporation
FAQs

What is a Professional Corporation in Pennsylvania?

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 Pennsylvania. 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 Pennsylvania, if you changed your mind.
– WEBINARCARE EDITORIAL TEAM

How to Form a Professional Corporation in Pennsylvania

To form a Professional Corporation in Pennsylvania 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 Registered Agent, 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 Decennial report and taxes.

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

In forming a professional corporation in Pennsylvania, 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 Pennsylvania

After you have decided to form a professional corporation in Pennsylvania, 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 Pennsylvania, 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 120 days. You must file a name reservation application in the Pennsylvania 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 Pennsylvania 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 Pennsylvania Registered Agent

The next step in forming a professional corporation is hiring a Registered Agent, 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 Pennsylvania. Forming a professional corporation for your service will be easier if you have Registered Agent in Pennsylvania.

Alternatively, you can serve as your own Registered Agent if you have the time. Usually, in Pennsylvania, a Registered Agent costs is ranging from $50 – $200. To make it easier, you can hire Pennsylvania Registered Agent 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.

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Step 4: File the Articles of Incorporation in Pennsylvania

After you hire a Registered Agent to form a professional corporation, the next step is to file the Pennsylvania Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Registered Agent 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 Pennsylvania may be done with two methods, online and by mail. The Articles of Incorporation fee may vary from different state. However, in Pennsylvania, it costs $125 for online and by mail filing. Create an account/Log in to the SOS site, get the online form, fill it, and submit online. For offline filing, Send the form by mail to Pennsylvania Department of State, Bureau of Corporations and Charitable Organizations, P.O. Box 8722, Harrisburg, PA 17105.

Step 5: Write an Operating Agreement in Pennsylvania

An operating agreement in Pennsylvania 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 Pennsylvania

The next step is to form the first board of directors for your PC in Pennsylvania. All of the initial directors must provide the owner with their contact information. The owner must keep records and submit them by the Pennsylvania 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 Pennsylvania, 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 Pennsylvania 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 Pennsylvania.

After the operating agreement’s documentation, you should get or request an Employer Identification Number (EIN) in Pennsylvania. 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 Pennsylvania 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 Pennsylvania 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 Pennsylvania 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 Pennsylvania

Before your professional corporation operates in Pennsylvania, you must have Pennsylvania 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 Pennsylvania 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 Pennsylvania

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 Pennsylvania tax classification for the taxes that an LLC in Pennsylvania 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 Pennsylvania.

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.
Pennsylvania 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 Pennsylvania

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 Decennial Report in Pennsylvania

In Pennsylvania, you must submit a report. The owners’ and Registered Agent’s names and contact details are listed in the Decennial Report. Also, it should include all of your yearly financial activity. You must submit the report every 10 years in the Pennsylvania Secretary of State.

FAQs

What is a professional corporation in Pennsylvania?

A corporation formed by professionals who provide services that require a state license.

How is a professional corporation formed in Pennsylvania?

By filing Articles of Incorporation with the Pennsylvania Department of State.

Can a professional corporation in Pennsylvania have multiple owners?

Yes, a professional corporation can have multiple owners, but all must be licensed professionals.

What types of professionals can form a professional corporation in Pennsylvania?

Any person required to hold a professional license in the state of Pennsylvania, such as doctors, lawyers, or engineers.

How does formation of a professional corporation differ from a regular corporation in Pennsylvania?

In addition to the general requirements for incorporation, a professional corporation in Pennsylvania must comply with specific statutes regarding licensing and professional conduct.

Do all owners in a professional corporation in Pennsylvania have to provide professional services?

Yes, all shareholders in a Pennsylvania professional corporation must offer professional services.

Are there any limits to the number of shareholders in a Pennsylvania professional corporation?

There is no limit to the number of shareholders in a Pennsylvania professional corporation.

Can a professional corporation in Pennsylvania provide services in other states?

Yes, a Pennsylvania professional corporation can provide services in other states if they comply with the laws of those states.

Are there any special tax rules for Pennsylvania professional corporations?

Pennsylvania professional corporations are taxed like regular corporations but there may be additional restrictions on deductions.

Do all members of a Pennsylvania professional corporation have to live in the state of Pennsylvania?

No, but everyone who lives out of state must get a foreign entity registration to operate in Pennsylvania.

Are there any disadvantages to forming a professional corporation in Pennsylvania compared to other states?

It’s a relatively inexpensive state to incorporate in.

Can a Pennsylvania professional corporation own property?

Yes, just like a regular corporation, a professional corporation can own property in Pennsylvania.

How much does it cost to form a professional corporation in Pennsylvania?

There is a $125 filing fee for incorporation in Pennsylvania.

Do professionals who work for the Pennsylvania professional corporation have to be shareholders?

No, they can be employees under a typical employment contract.

Is professional liability insurance required for Pennsylvania professional corporations?

Though not required, it’s a good idea still get it for operating protection.

Are there specific types of insurance a Pennsylvania professional corporation should carry?

Yes, a Pennsylvania professional corporation should carry professional liability and workers’ compensation insurance.

Does forming a professional corporation protect professionals from personal liability in Pennsylvania?

Yes, professionals in a professional corporation in Pennsylvania do enjoy protection from personal liability under the business name itself.

Is it easier or harder to raise capital for a Pennsylvania professional corporation compared to other types of businesses?

It could be easier than raising capital for a partnership because rather than investing in specific people, people would solely invest in the company which will provide potential profits.

Does a Pennsylvania professional corporation require annual meetings?

Yes, a Pennsylvania corporation is required to have annual meetings following the bylaws of the corporation.

Are there residency requirements for the board of a Pennsylvania professional corporation?

No, though all board members do need to be licensed professionals and meet other requirements.

Can a Pennsylvania professional corporation dissolve by agreement if one shareholder objects?

If a Pennsylvanian corporate entity owns shares then needing unanimous consent should be addressed in the Articles of Incorporation.

Is Board of director responsible for management of daily operations for the corporation?

The BoDs are fiduciaries over shareholders and appoint officers to carry out daily corporate operations.

Must a Pennsylvania web developer who consults with clients from other states form a Pennsylvania professional corporation?

No, meeting clients from other states doesn’t mean you have to exclusively set a corporation in Pennsylvania as every US-zone has its own corporation formation law.

Is Pennsylvania law specific to professional corporations incorporated within the state?

Yes, the Pennsylvania laws are specific to professional corporations whose origination has been in the state.

Can a shareholder of a Pennsylvania professional corporation receive profits from the company?

Yes, shareholders may receive dividends but keep in mind that taxation can be different.

Can a Pennsylvania professional corporation change the type of professional services it provides?

Yes, the professional services would have to be added as a filing with a state Secretary of State.

How long does it take to form a professional corporation in Pennsylvania?

It can take between five to ten days to incorporate in Pennsylvania.

What must a Pennsylvania professional corporation put in its Articles of Incorporation?

The name of the corporation must include the words “Professional Corporation,” and all stakeholders for seeable future.

Who can form a professional corporation in Pennsylvania?

Licensed professionals, such as doctors, attorneys, and accountants, can form a professional corporation in Pennsylvania.

What is required to form a professional corporation in Pennsylvania?

The requirements to form a professional corporation in Pennsylvania include filing articles of incorporation with the Pennsylvania Department of State and obtaining all necessary licenses.

What are the benefits of forming a professional corporation in Pennsylvania?

Some benefits of forming a professional corporation in Pennsylvania include limited liability, tax benefits, and increased credibility with clients and business partners.

How many shareholders are required to form a professional corporation in Pennsylvania?

Pennsylvania law requires at least two shareholders to form a professional corporation.

Can a professional corporation limit liability in Pennsylvania?

Yes, one of the main benefits of forming a professional corporation in Pennsylvania is that it can limit the personal liability of its owners for business debts and obligations.

Can a professional corporation be taxed as an S corporation in Pennsylvania?

Yes, a Pennsylvania professional corporation can elect to be taxed as an S corporation for federal tax purposes.

Can a professional corporation provide services in Pennsylvania without a license?

No, a professional corporation must have the necessary licenses to provide professional services in Pennsylvania.

What happens if a professional corporation fails to obtain a necessary license in Pennsylvania?

If a Pennsylvania professional corporation fails to obtain a necessary license, it may be subject to fines and may not be able to provide certain professional services.

Can a non-professional be a shareholder in a Pennsylvania professional corporation?

No, Pennsylvania law requires that only licensed professionals can be shareholders in a professional corporation.

What happens if a shareholder dies or becomes incapacitated in a Pennsylvania professional corporation?

In the event of a shareholder’s death or incapacitation, their interest in the professional corporation must be redistributed in accordance with the corporation’s bylaws.

Is a Pennsylvania professional corporation required to hold annual meetings?

Yes, Pennsylvania law requires professional corporations to hold annual meetings of shareholders.

What are the rules for naming a professional corporation in Pennsylvania?

The name of a Pennsylvania professional corporation must include the words “chartered,” “incorporated,” “professional corporation,” or “P.C.”

How do I file articles of incorporation for a Pennsylvania professional corporation?

Articles of incorporation for a Pennsylvania professional corporation can be filed by submitting the necessary forms and fees to the Pennsylvania Department of State.

Can a Pennsylvania professional corporation be sued?

Yes, like any other corporation, a professional corporation can be sued in Pennsylvania.

How many officers are required for a Pennsylvania professional corporation?

A Pennsylvania professional corporation must have at least one officer, which is usually the president.

Can a Pennsylvania professional corporation opt out of workers’ compensation insurance?

No, Pennsylvania law requires all corporations, including professional corporations, to carry workers’ compensation insurance.

Can a Pennsylvania professional corporation be voluntarily dissolved?

Yes, a Pennsylvania professional corporation may be voluntarily dissolved by filing the necessary paperwork with the Pennsylvania Department of State.

What happens to a Pennsylvania professional corporation’s assets if it is dissolved?

If a Pennsylvania professional corporation is dissolved, its assets are distributed to its shareholders in accordance with its bylaws.

Can a Pennsylvania professional corporation issue stock?

Yes, a Pennsylvania professional corporation may issue stock to its shareholders.

What is the liability of a shareholder in a Pennsylvania professional corporation?

Generally, shareholders in a Pennsylvania professional corporation are liable only for their own actions and cannot be held personally liable for the corporation’s debts and obligations.

Can a Pennsylvania professional corporation file for bankruptcy?

Yes, a Pennsylvania professional corporation may file for bankruptcy in the event of financial insolvency.

Does a Pennsylvania professional corporation have to file an annual report?

Yes, a Pennsylvania professional corporation is required to file an annual report with the Pennsylvania Department of State.

Does Pennsylvania tax professional corporations differently than other corporations?

No, Pennsylvania taxes professional corporations in the same way as other corporations, but they may be eligible for certain tax benefits specific to professionals.

How do I know if forming a professional corporation is right for me in Pennsylvania?

The decision to form a professional corporation in Pennsylvania should be based on your specific professional needs, liability concerns, and tax considerations, and it’s recommended to consult with a licensed attorney or accountant before making any decisions.

How to Save Money While Forming Pennsylvania Professional Corporation

First and foremost, it’s crucial to consider the type of legal entity your professional corporation will be. One cost-saving option to explore is forming a limited liability company (LLC) instead of a traditional professional corporation. LLCs offer a simpler and more cost-effective structure, as they require less paperwork and have fewer formalities compared to professional corporations. Additionally, LLCs provide greater flexibility when it comes to taxes, as they allow for pass-through taxation, which can lead to significant savings for your business.

Another important factor to consider when forming a professional corporation is choosing the right business structure. Opting for a solo practice or partnership instead of a larger corporation can help reduce costs significantly. Solo and small practices often have lower overhead costs and administrative burdens, allowing for more savings in the long run. Additionally, partnerships can help distribute financial responsibilities among multiple partners, reducing the financial strain on any single individual.

When it comes to hiring legal counsel for forming your professional corporation, it’s essential to do your homework and shop around for the best rates. Research different law firms and compare their fees before making a decision. Some firms may offer discounted rates or flat-fee options for corporate formation services, so be sure to inquire about any available cost-saving opportunities. Additionally, consider using online legal services or software to help with the formation process, which can be a more budget-friendly option compared to hiring a traditional law firm.

Furthermore, it’s important to be mindful of ongoing expenses associated with maintaining a professional corporation in Pennsylvania. Consider outsourcing certain administrative tasks, such as bookkeeping or payroll, to third-party providers to save time and money. Investing in cloud-based software for accounting, bookkeeping, and other essential functions can also help streamline operations and reduce costs associated with traditional in-house services.

Lastly, take advantage of all available tax deductions and incentives for professional corporations in Pennsylvania. Familiarize yourself with state and federal tax laws to ensure you’re maximizing your savings potential. Consider consulting with a tax professional to help navigate complex tax regulations and identify opportunities for deductions that can benefit your business financially.

In conclusion, forming a professional corporation in Pennsylvania doesn’t have to break the bank. By carefully considering your business structure, legal representation, ongoing expenses, and tax strategies, you can save money and set your professional corporation up for success. With proper planning and smart decision-making, you can create a solid financial foundation for your business and pave the way for long-term growth and prosperity.

Conclusion

In conclusion, forming a professional corporation in Pennsylvania 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.