In many states, professionals who want to incorporate their practice must form a special type of corporation called a "professional corporation" or "professional services corporation." These professional corporations are usually similar to regular corporations but have certain special requirements.
California requires certain professionals—such as lawyers, accountants, and engineers—to create a professional corporation rather than the traditional corporation. Unlike many other states, California doesn't allow professionals to form a limited liability company (LLC) or professional LLC (PLLC).
California professional corporations are governed by the Moscone-Knox Professional Corporation Act. (Cal. Corp. Code §§ 13400 and following (2023.))
In California, you're required to form a professional corporation if you provide professional services that require a license, certification, or registration. However, importantly, California provides exceptions for some professions. For example, medical professionals (such as doctors, registered nurses, and pharmacists) aren't required to form a professional corporation. Instead, medical professionals must form medical corporations.
Other types of professions that aren't required to form professional corporations are:
This list isn't exhaustive. You can find a full list of excluded professions under the Moscone-Knox Professional Corporation Act (Cal. Corp. Code § 13401 (2023).)
Professional corporations must meet several requirements under California law.
Unless an exception applies, California professional corporations can be formed only to provide professional services (including secondary services) within a single profession. A professional service is defined as any service that requires a license issued by a California state regulatory licensing board, state court, or similar agency. To provide services, all California professional corporations must have a currently effective certificate of registration issued by the governmental agency regulating their profession.
Professional corporations are also governed by the governmental agency or board that's responsible for overseeing that profession. The agency might have additional requirements. For example, the board might have limitations on the professional corporation's choice of name and require the professional corporation's bylaws to specify who can be officers and own shares in the business.
Professional corporations must comply with applicable rules in the California Business and Professions Code. These rules vary by profession, but they all require that only licensed persons can be shareholders of a professional corporation. Check for any other applicable rules for your profession in the California Business and Professions Code. (Cal. Corp. Code § 13406 (2023).)
Unless an exception applies, a shareholder must be licensed in the profession that the professional corporation is engaged in. However, other licensed professionals can be officers, shareholders, directors, or professional employees in specified professions, as long as the total number of shares owned by these other licensed professionals isn't more than 49% of the corporation's total shares. (Cal. Corp. Code § 13401.5 (2023).)
Officers and directors of professional corporations generally must be licensed to perform the professional activity that the corporation is engaged in. Unless the corporation has less than three shareholders, California professional corporations must have at least three directors on their board.
Professional corporations with one shareholder: If you have only one shareholder, that shareholder can also be the only director and can also serve as the president and treasurer of the corporation. The other officers of the corporation in that situation need not be licensed professionals.
Professional corporations with two shareholders: A professional corporation that has two shareholders can have those two shareholders appointed as the only two directors. Those two shareholders between them can fill the offices of president, vice president, secretary, and treasurer of the corporation.
(Cal. Corp. Code § 13403 (2023).)
The name of a professional corporation in California must comply with rules governing the profession and any name requirements issued by the licensing agency for that profession. It also must be distinguishable from the name of any other business entity on file with the California Secretary of State (SOS). (Cal. Corp. Code § 13409 (2023).)
You can request a free initial check on the availability of your professional corporation's name by mailing a completed Name Availability Inquiry Letter form to the SOS. Email or online inquiries aren't currently accepted. You can reserve a name for 60 days by using the bizfile Online system.
Once you've determined that you're required to register as a professional corporation and you've chosen a name for your business, you'll need to submit the appropriate paperwork to the SOS.
To form a professional corporation in California, you must file articles of incorporation with the SOS and pay all applicable filing fees. You can complete and mail the Articles of Incorporation of a Professional Corporation to the SOS. You can also submit the filing online through bizfile Online. As of 2023, the filing fee is $100.
Your articles must include the corporation's
If an individual person is listed as the agent for service of process, the agent's California street address (not a P.O. box) must be included where documents can be served.
Your corporation must also file a Statement of Information, along with applicable filing fees, within 90 days of filing the articles of incorporation. You can file online or mail in the completed form to the SOS You need to file this form every year. As of 2023, the filing fee is $25.
The Statement of Information must include the following:
Once you've formed your professional corporation, you'll need to comply with tax and other regulatory requirements that apply to professional corporations in California. You should also create bylaws to govern your foreign corporation. For more information on the general requirements for forming a California corporation (many of which apply to professional corporations), see our article about how to form a corporation in California.
The rules and requirements for forming your corporation can vary across regulatory fields. You should check with the agency in charge of your profession before forming your professional corporation. If you have legal questions, consider speaking with a California business attorney. They can help you file formation paperwork, draft internal corporate documents, and comply with industry-specific rules.