In some states, professionals licensed in fields such as engineering, health care and accountancy can use different entity types to form a business for providing their professional services. In other states, the option is limited to an entity type called Professional Corporation (PC) or Professional Service Corporation (PSC). There are also states that allow Professional Limited Liability Companies (PLLC), another professional service entity type, but this article will focus on Professional Corporations.
Professional Corporations are governed by state law and the requirements vary. Therefore, it’s pivotal for licensed professionals looking to incorporate to consider information such as what entity type is available for which occupation and what the requirements are for forming a Professional Corporation.
Unlike a general business corporation, a Professional Corporation is an entity structure with the purpose of providing professional services. It is established typically by a group of individuals who are licensed in the same profession. Each state varies on whether a specific profession must form a Professional Corporation or can provide its professional services through the usual entity types (i.e., business corporation, limited liability company, partnership, limited liability partnership). For example, in Texas, you can provide professional engineering services by forming a regular business corporation. On the other hand, in New York, a corporation cannot provide this service unless it is a “grandfathered” general business corporation under Section 7209. Moreover, a foreign business corporation authorized to practice engineering in its domestic state cannot provide such services in New York, but a foreign Professional Corporation may. In New York, engineering professionals can form Professional Corporations, Design Professional Corporations, and limited liability companies among other entity structures if the shareholders, officers, and directors are all licensed engineering professionals.
In general, the licensed professions that typically form Professional Corporations include (but are not limited to) different health care professionals, lawyers, accountants, engineers, social workers, and veterinarians. You can check with the incorporating state’s corporate filing offices to determine which professions must form or have the option of forming Professional Corporations.
This entity type also provides limited personal liability for business debts and claims. This protection may not extend to the professional’s negligence or malpractice, but it can apply to an associate’s negligence or malpractice.
The specific requirements and limitations for Professional Corporations vary by state. However, in addition to the mandatory licenses to practice, incorporating a Professional Corporation usually requires the following:
There are certain restrictions that usually apply to Professional Corporations:
When deciding whether to form a Professional Corporation, there are multiple factors to be considered, ranging from the profession type to the state of incorporation to director and officer requirements. Therefore, it’s imperative to consider all of these different requirements and the regulations for the professional service you’ll be offering to make the right decision for you.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.