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Professional Corporations

General Definition:  Corporations organized for the purposes of providing professional services.  

Typically professional services are regulated by a specific board or organization within each state (such as a State Board of Professional Engineers or the State Bar for attorneys).  Some of the most common businesses which must be organized as Professional Corporations include; medical, legal, accounting, architectural and accounting services.  Laws differ from state to state regarding what businesses must form professional corporations. 

Usually, Professional Corporations must be organized for the sole purpose of rendering one professional service.

 

terminology

name for owners:
Shareholders

name for ownership Interest:
Shares 
(Preferred or Common)

document that creates the entity:
Articles of Incorporation
Certificate of Incorporation
Charter of Incorporation
Articles of Association

document that determines 
operating procedure:

Corporate Bylaws

 

formation

Tax Treatment:  A Professional Corporation can usually elect the tax treatment of either a S Corporation or C Corporation.  In some cases, if a Professional Corporation is formed as a C Corporation and is deemed a "qualified personal service corporation," it will not receive the benefit of graduated corporate income tax rates.   Qualified personal service corporations typically provide services in medicine, law, health, accounting, engineering, architecture, consulting and actuarial science. To determine how your corporation will be classified, we recommend that you seek the advice of an accountant. 

Additional Requirements:  Formation of a Professional Corporation normally requires compliance with specific rules set forth by the regulatory body of the profession in questions.  In most cases, there are separate applications which must be filed to obtain the necessary licensing.

Time Line:  The requirements for additional signatures and information specific to each regulatory body tend to extend the registration process for Professional Corporations.

 

personnel

Many states restrict who can be a shareholder or a director in a Professional Corporation.  For example, in some states, only licensed practitioners of the service provided by the corporation may own stock or serve on the board.  Some states require at least 50% of the shareholders and/or directors to be licensed professionals.

Directors:  The board of directors are representatives of the shareholders.  They make the important policy decisions of the company and elect the officers.  Most states require corporations to have the lesser of 1) three directors, or 2) directors equaling the number of shareholders in the corporation. 

Officers:  The officers manage the day to day operations of the corporation.  Generally, the first three officers of a corporation are the President, Treasurer and Secretary.  In many states, a for-profit S Corporation with one director may have one officer fill all three roles.

 

names of professional corporations

Most states require one of the following words, or abbreviations thereof, to be included in the name of a Professional Corporation:

names

abbreviations

Professional Corporation  
Professional Association*

P.C., or PC
P.A., or PA

* only allowed in a few states

Additionally, in some states the name of the profession must be listed in the name (such as Smith Engineering, P.C.).

In most cases, Professional Corporations cannot do business under additional fictitious names.  

 

issuing stock

As mentioned, in some states shares may not be issued to parties who are not licensed professionals in the service being rendered by the corporation.

 

professional corporation formalities

Professional Corporations are subject to the same formalities as S Corporations or C Corporations, depending on the status they elect.

 

 

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