How to Form a California Professional Corporation with CD-ROM

Introduction

Many professionals have incorporated their businesses. Many more are considering whether it is wise to do so. If you are reading this book, you are probably one of this group. The first thing you need to know is that only the members of certain professions (listed in Section B, below) need to incorporate under the California Moscone-Knox Professional Corporation Act as a professional corporation. If you are a member of any other profession and you wish to incorporate, you should do so as a regular business corporation under the California General Corporation Law. (See How to Form Your Own California Corporation , by Anthony Mancuso (Nolo) -- order information is included at the back of this book.)

Professions Required to Incorporate as Professional Corporations

• Accountants
• Acupuncturists
• Architects*
• Attorneys (Law)
• (Licensed) Clinical Social Workers
• Chiropractors
• Dentists
• Doctors (Medical Doctors including Surgeons)
• Marriage and Family Therapists
• Naturopathic Doctors
• Nurses
• Optometrists
• Osteopaths
• Pharmacists
• Physical Therapists
• Physician Assistants
• Podiatrists
• Psychologists
• Shorthand Reporters
• Speech-Language Pathologists and Audiologists
• Veterinarians*

*Note: Architects and veterinarians have the option to incorporate as either regular business corporations or as professional corporations. Also, state law allows architects to convert an architectural general partnership into a registered limited liability partnership (by making a simple filing with the Secretary of State -- call the Architectural Board of Examiners in to avoid further information). To avoid extra formalities associated with the formation of a professional corporation, architects and veterinarians often choose to incorporate as regular business corporations (not as professional corporations).

Why Become a Professional Corporation?

Most readers of this book are currently doing business as either a sole proprietorship or a partnership. You have probably heard that the corporate form provides advantages. Often it does, but it depends to a significant degree on who you are, what your business is like, how much you earn, and son, and it's impossible to provide any simple formula as to exactly what corporate status will you. Here are some of the considerations that many professionals who have incorporated do or point to when for asked why they decided to change the way their businesses were organized. We will discuss these in more detail later in Chapters 3 and 4:

• limited liability for business claims and for malpractice claims against other professionals in the practice (though professionals do not have limited liability for their own malpractice -- see Chapter 3, Section A1)
• fringe benefits that are, for the most part, deductible from the corporation's income
• corporate retirement plans that may be more liberal in some respects than IRAs and Keoghs
• order established in their business
• tax flexibility (control over how much individual income [salary] each professional will earn and report on federal and state tax returns; for some professionals, profits kept in the practice may be taxed at lower corporate rates); and
• perpetual corporate existence.

How Will Your Corporation Be Set Up?

A professional corporation can be any size. Thus, even a sole practitioner can incorporate -- and in fact, many self-employed professionals do. If you are a professional partnership, the partnership itself can incorporate (providing all the partners are qualified licensed professionals -- see Chapter 4). There is also the possibility of some, or even all, of the members of a partnership individually incorporating. The partnership will then become a partnership made up of both professional corporations and unincorporated professionals. For example, we know of a pediatrics partnership consisting of five pediatricians. Two of the pediatricians have incorporated themselves as professional corporations while the other three pediatricians have remained as unincorporated members of the partnership. (Notice that pediatricians are medical doctors and thus fall within the Professional Corporation Law.)

No matter how your professional corporation is set up, it will generally render service in a single profession. (Cal. Corp. Code § 13401.) There are some exceptions whereby persons licensed in specified related professions may also be shareholders, directors, and/or officers of certain professional corporations (see Chapter 4, Sections D and E) and perform their own professional services. (Cal. Corp. Code § 13401.5.)

California Law Covering Professional Corporations

California has a set of statutes called the General Corporation Law (GCL), a portion of the California Corporations Code relating to regular profit corporations. Anyone who wishes to incorporate must comply with these laws. However, members of certain professions must also comply with the Moscone-Knox Professional Corporation Act (another part of the Corporations Code), the Business and Professions Code, and with various administrative regulations issued by the agencies governing these professions. (See Chapter 4 and Appendix 4.)

What Agency Supervises Your Profession?

As you are no doubt aware, your profession is regulated by a California agency. The agency, its address, phone number, and website are included in Appendix 4 to this book. BE SURE TO CONTACT THE AGENCY BEFORE YOU FILE YOUR ARTICLES OF INCORPORATION. The agency will provide some information, though you will find that some agencies are more helpful than others. The agency will provide an application form if you need a certificate of registration (see Chapter 4) and possibly keep you up to date on the latest changes in the law. Except for the State Bar (whose office is in San Francisco), the main offices of these agencies are in Sacramento. If you are seriously thinking about incorporating, you should contact the agency now.

Specific Requirements Covering the Incorporation of Your Profession

Though California law establishes general requirements that professionals must meet to incorporate, the agencies supervising the professions issue regulations defining additional requirements for each profession. Appendix 4 to this book sets out some of these basic rules (such as whether you need liability insurance, what names you can use, and who can own shares in the corporation) with citations to the law and regulations that apply. Be sure to refer to Appendix 4 before you begin incorporating. For a general discussion of the requirements, see Chapter 4.