How to Form a Professional Corporation in California


Steve Bennett
Steve Bennett
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Form a Professional Corporation in California

Are you considering starting a professional corporation in California? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in California can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in California, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in California!

What is a Professional Corporation in California?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in California. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in California.

– LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in California if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in California

To form a Professional Corporation 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 Agent for Service of Process, 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 annual report and taxes.

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

In forming a professional corporation in California, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

  • Doctors
  • Architects
  • Engineers
  • Accountants
  • Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in California

After you have decided on the idea to form a professional corporation in California, deciding the name for your corporation is significant. There is a complete guide on California LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while 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)
  • No confusion with a government entity name.
  • A unique name is needed with no match
  • Limit of restricted words that need a license.

In California, 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 60 days. To keep the name, you must file a name reservation application with California Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the California Agent for Service of Process

The next step in forming a professional corporation is hiring the California Agent for Service of Process, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in California. Forming a professional corporation for your service will be easier if you have Agent for Service of Process in California.

Alternatively, you can serve as your own California Agent for Service of Process if you have the time. However, you must stay compliant to avoid missing any important documents from California.

Step 4: File the Articles of Incorporation in California

After you hire a California Agent for Service of Process to form a professional corporation, the next step is to file the California Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Agent for Service of Process contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Articles of Incorporation in California may be done with three ways, online, by mail and in-person. The Articles of Incorporation fee may vary from different states. However, in California, it costs $100 for filing online and by mail. $115 for in person filing. Get the online form from Secretary of State, fill it up, and submit. Don’t refresh the page during the process. It will erase everything. . For offline filing, Send the form by mail to Secretary of State, Business Entities Filings, P.O. Box 944228, Sacramento, CA 94244. Or drop it off in person to 1500 11th St., 3rd Floor, Sacramento, CA – 95814.

Step 5: Write an Operating Agreement in California

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The California operating agreement includes information like-

  1. About Business
  2. Members and management
  3. Capital contribution
  4. Profit Distribution
  5. Change of membership
  6. Dissolution

Step 6: Designate the PC Board of Directors in California

The next step is to appoint the initial board of directors in your PC in California. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the California SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

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.

In creating corporate bylaws, you should include the following on how the decisions will be made.

  • The responsibilities are given to each officer.
  • How will judgments in business be made?
  • Where and when are the annual shareholder meetings?
  • The minimum number of shareholders required for decision-making.
  • Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in California

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in California 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 4 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 a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in California might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in California

Before your professional corporation operates in California, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In California, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in California

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the California classification of taxes for the taxes an LLC in California has to pay.

Important Information

Maintaining Professional and Business License in California

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in California

In California, you will be required to submit a report each year. The owners’ and Agent for Service of Process’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in California, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in California

A professional corporation takes a lot of time to process and pursue. However, with the help of the California Agent for Service of Process, everything will become easier. In fact, there are advantages that will help you form a professional corporation in California.

  1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.
  1. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What is a Professional Corporation in California?
A Professional Corporation in California is a legal entity created under the laws of the state, which allows professionals, such as doctors, lawyers, and accountants, to practice their professions through the corporation.
What are the benefits of forming a Professional Corporation in California?
Forming a Professional Corporation in California offers several advantages, including
What documents do I need to form a Professional Corporation in California?
To form a Professional Corporation in California, you will need to file the Articles of Incorporation with the California Secretary of State, as well as a Statement of Information and an Initial Report.
How long does it take to form a Professional Corporation in California?
The process of forming a Professional Corporation in California typically takes between 2-4 weeks.
How much does it cost to form a Professional Corporation in California?
The cost to form a Professional Corporation in California will vary depending on the filing fees associated with the applicable documents and other applicable state statutes.
What is the minimum and maximum number of directors for a Professional Corporation in California?
The minimum number of directors for a Professional Corporation in California is one, and the maximum number of directors depends on the number of shareholders.
Do I need to have meetings for a Professional Corporation in California?
Yes, a Professional Corporation in California is required to have annual meetings of the board of directors and shareholders.
Do I need to have a registered agent for a Professional Corporation in California?
Yes, a Professional Corporation in California must have a registered agent located in the state who is authorized to accept service of process on behalf of the company.
Do I need to file an annual report for a Professional Corporation in California?
Yes, a Professional Corporation in California must file an annual report with the California Secretary of State.
Is there a minimum amount of capital that must be maintained for a Professional Corporation in California?
No, there is no minimum amount of capital that must be maintained for a Professional Corporation in California.
Is there a limit to the amount of profit a Professional Corporation in California can make?
No, there is no limit to the amount of profit a Professional Corporation in California can make.
Are there any restrictions on the types of activities a Professional Corporation in California can engage in?
Yes, Professional Corporations in California are only allowed to engage in activities related to the profession for which it is organized.
What are the tax implications for a Professional Corporation in California?
Professional Corporations in California are subject to both federal and state taxes, including income and payroll taxes.
How is a Professional Corporation in California dissolved?
A Professional Corporation in California must file a Certificate of Dissolution with the California Secretary of State in order to be dissolved.
Are there any restrictions on who can own a Professional Corporation in California?
Yes, only individuals licensed in the same profession can own a Professional Corporation in California.
Do I need to have a corporate seal for a Professional Corporation in California?
No, a corporate seal is not required for a Professional Corporation in California.
What is the process for issuing stock for a Professional Corporation in California?
To issue stock for a Professional Corporation in California, the company must file a Certificate of Authorization with the California Secretary of State.
Are there any restrictions on the transfer of shares for a Professional Corporation in California?
Yes, the transfer of shares for a Professional Corporation in California is subject to restrictions set forth in the company’s articles of incorporation and bylaws.
Is there a limit to the number of shareholders a Professional Corporation in California can have?
Yes, the maximum number of shareholders a Professional Corporation in California can have is determined by the state’s laws.
Do I need a license to practice my profession through a Professional Corporation in California?
Yes, a license is required to practice a profession through a Professional Corporation in California.
Is there a requirement for liability insurance for a Professional Corporation in California?
Yes, Professional Corporations in California are required to carry liability insurance in order to protect their assets from any potential liabilities.
Is there any special paperwork that needs to be filed for a Professional Corporation in California?
Yes, a Professional Corporation in California must file an Initial Report and a Statement of Information with the California Secretary of State.
Are there any other states where I can form a Professional Corporation?
Yes, most states allow for the formation of Professional Corporations, although the laws and requirements may vary from state to state.
Can I form a Professional Corporation in California without filing any documents?
No, in order to form a Professional Corporation in California, you must file the required documents with the California Secretary of State.
What are the consequences of not complying with the requirements for a Professional Corporation in California?
If you do not comply with the requirements for a Professional Corporation in California, you may be subject to fines and penalties, as well as suspension or revocation of the corporation’s legal status.
Are there any restrictions on the sale of a Professional Corporation in California?
Yes, the sale of a Professional Corporation in California is subject to restrictions set forth in the company’s articles of incorporation and bylaws.
Is there a limit to the amount of salary a shareholder of a Professional Corporation in California can receive?
Yes, the maximum salary a shareholder of a Professional Corporation in California can receive is limited to the amount which is reasonable for the services provided.
What are the restrictions on the use of corporate funds for a Professional Corporation in California?
The use of corporate funds for a Professional Corporation in California must be related to the profession for which it is organized, and the funds must be used in a manner that is in the best interests of the corporation.
What are the requirements to form a Professional Corporation in California?
In order to form a Professional Corporation in California, the entity must be organized for the purpose of rendering professional services as authorized by the California Business and Professions Code and must include the words “professional corporation,” “professional association,” or the abbreviation “P.C.,” “P.A.,” or “P.C.A.” in its name.
What is the filing fee to form a Professional Corporation in California?
The filing fee to form a Professional Corporation in California is $100.
How long will it take to form a Professional Corporation in California?
It typically takes between 3-7 business days to form a Professional Corporation in California.
What is required to maintain a Professional Corporation in California?
To maintain a Professional Corporation in California, an annual Statement of Information must be filed with the California Secretary of State every year. Additionally, the Professional Corporation must keep up with its corporate formalities, such as holding regular board of directors meetings and issuing stock certificates.

Also Read

Why California Professional Corporation is So Important

One of the key reasons why California Professional Corporation is so important is the professional expertise it offers. These corporations are typically formed by individuals with specialized knowledge and skills in fields such as law, medicine, accounting, and engineering. By establishing a Professional Corporation, these professionals can work together and provide their services to clients in a more organized and efficient manner.

Moreover, California Professional Corporation provides a level of credibility and trust that is essential in professional services. Clients are more likely to trust professionals who are associated with a licensed Professional Corporation, as it shows that they are committed to upholding ethical standards and complying with professional regulations. This level of accountability is crucial for maintaining the integrity of the profession and ensuring that clients receive quality services.

In addition, California Professional Corporation offers certain legal protections to its members. By operating as a corporation, professionals can shield themselves from personal liability for the actions of their colleagues. This provides a degree of security and stability for professionals who may be exposed to legal risks in the course of their work.

Furthermore, California Professional Corporation fosters collaboration and cooperation among professionals. By coming together under a common corporate structure, professionals can share resources, exchange ideas, and collaborate on projects to provide more comprehensive services to their clients. This cooperative approach not only benefits clients but also helps professionals expand their practices and reach new markets.

Another reason why California Professional Corporation is important is its impact on the economy. These professional corporations contribute to job creation, innovation, and overall economic growth in the state. By offering high-quality services, attracting clients from outside the state, and participating in various industries, Professional Corporations play a critical role in driving economic development and prosperity in California.

Moreover, California Professional Corporation is essential for maintaining a competitive marketplace. By promoting fair competition and ensuring that professionals adhere to industry standards, these corporations help prevent monopolies, price fixing, and other anti-competitive practices that could harm consumers. By fostering a competitive environment, Professional Corporations encourage innovation, efficiency, and excellence in service delivery.

Overall, California Professional Corporation is a vital component of the state’s economy and society. From providing professional expertise and credibility to promoting collaboration and economic growth, these corporations play a diverse and essential role in various industries. It is crucial to recognize the importance of Professional Corporations and support policies that foster their growth and development for the benefit of California and its residents.

Conclusion

In forming a professional corporation in California, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.

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