PART 2 OF 3: The Professional Corporation Up Close

The structure California provides for licensed practice, and what it requires.

Since an LLC is generally off the table, the professional corporation is the structure that takes its place for most California medical and dental practices. It is the vehicle the law provides for licensed professionals to practice in corporate form, and it comes with its own ownership, formation, and operating requirements. This part examines the professional corporation and what forming and running one involves.

What a professional corporation is

A professional corporation is a corporation organized specifically for licensed professionals to render professional services through a corporate entity. For a medical practice it is a professional medical corporation; for a dental practice, a professional dental corporation. It lets providers operate in corporate form while satisfying the requirement that the practice remain owned and controlled by licensed individuals.

Ownership requirements

Ownership of a professional corporation is restricted by statute, and this is one of the sharpest contrasts with the flexible LLC:

• Shares must generally be held by licensed persons, with the practice majority-owned by the primary licensed profession.

• A limited minority interest may be held by certain other licensed professionals identified by statute.

• Unlicensed individuals and outside investors cannot hold shares in the professional corporation itself.

• Rules govern what happens to a shareholder's interest on death, disqualification, or departure.

Formation and naming formalities

A professional corporation must satisfy requirements an LLC would not, including restrictions on the corporate name and specific formation and registration steps with the Secretary of State and the relevant licensing board. It must also observe ongoing corporate formalities, such as governance, records, and filings, to maintain its status and the protection it offers. The simplicity that makes the LLC attractive is one of the things a professional corporation gives up.

The liability boundary

A professional corporation can shield an owner from many business liabilities and from certain acts of other providers, but it does not shield a provider from liability for their own professional negligence. This is true of the LLC as well: no entity eliminates a clinician's personal responsibility for their own care. Understanding this boundary keeps expectations realistic about what any structure can accomplish.

Tax treatment

A professional corporation can generally elect how it is taxed, including options that affect how income is distributed and taxed at the entity and owner levels. This gives it flexibility comparable in some respects to what draws businesses to the LLC. The right election depends on the practice's economics and the owners' circumstances and should be made with a tax advisor.

How West Coast Health Law Can Help

We form and advise professional corporations for California providers, meeting the ownership, naming, and governance requirements and coordinating the liability and tax considerations that come with the structure.

West Coast Health Law offers a FREE consultation which you may schedule by clicking the button on our website.

This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Laws change and every practice is different; consult a qualified attorney about your specific circumstances.