Professional Corporation

Typically, licensed professionals in regulated fields such as medicine, law, architecture, engineering, and accounting and finance are eligible to form a PC. It can be helpful to check with your profession’s state licensing board for insight and guidance.

Yes. The rules are not uniform across all states. Some states may require certain licensed professionals to form a Professional Corporation or prohibit them from forming one. Most states require that all shareholders in a PC be licensed in the same profession.

Generally, it can be more costly to create and operate a PC due to special licenses, approvals, and additional steps required to comply with state licensing boards.

Yes, provided that it completes the foreign qualification process to obtain authorization to operate in each additional state and complies with the professional licensing regulations and other laws in each state and in the municipalities where the PC will conduct business.

A PC is a separate legal entity. Therefore, its individual shareholders are, under most circumstances, not responsible for the legal or financial claims against the company or the PC’s other shareholders. That “corporate veil” of protection shields shareholders’ personal assets (beyond the amount originally invested to form the PC) from being seized to settle the PC’s debts.

However, all shareholders could be held personally liable if the Professional Corporation fails to meet its ongoing compliance requirements. Also, a shareholder could lose their liability protection if they personally guarantee a business loan, commit fraud, act negligently, or commingle personal and business finances. While the PC structure protects an individual from the other shareholders’ malpractice or negligence, the individual remains responsible and liable for their own actions.

Professional Corporation is taxed as a C Corporation, meaning the corporation and its shareholders are separate taxable entities. If a PC meets the IRS eligibility requirements, it may apply for S Corporation status, which means it will be taxed as a pass-through entity. As such, profits pass through to shareholders and are not subject to double taxation; i.e., they are taxed at only the individual level, not at the corporate level.  

This can vary by state, but a PC may usually have an unlimited number of shareholders, barring any restrictions imposed by professional licensing rules. However, most states will not allow shareholders who are not licensed in the same professional occupation. A Professional Corporation may not exceed 100 shareholders if it elects S Corporation tax treatment.

Yes. Like other corporations, a PC needs a registered agent in each state where it is formed or foreign qualified.

Professional Corporations are corporate structures and must have directors and officers to oversee their governance. Many states require that directors and officers be licensed in the same profession as the PC’s shareholders. Other requirements (such as the minimum or maximum number of board members and board meeting frequency) can vary by state and a Professional Corporation’s bylaws.

Professional Corporation shareholders who provide services to the business are on the company’s payroll and typically paid via paychecks or direct deposit. Like other employees’ compensation, their pay is subject to payroll tax deductions and other employment-related withholdings. A PC’s shareholders also get a share of the company’s profits, which are distributed according to the Corporation’s bylaws.

If the state and the entity’s bylaws permit it, a PC may sell stock. The sale or transfer of ownership shares in a Professional Corporation is typically restricted by state law to licensed professionals who provide the same services or approved entities.

Both business structures are for licensed professionals in specific occupations, and each is its own separate legal entity. However, a PC is a separate tax-paying entity, and a PLLC is a pass-through tax entity. By default, a PLLC is taxed as a Partnership. Therefore, all of a PLLC’s income tax obligations pass through to the entity’s members’ individual tax returns. In addition to income taxes, PLLC members must pay self-employment taxes (Medicare and Social Security) on their entire distributive share of net business income and any guaranteed payments. If it meets the IRS qualification requirements, a PLLC may elect the S Corporation election to help minimize its members’ self-employment tax burden.