California Professional Corporations

The PC rule usually surfaces at a bad moment. A physician or therapist files an LLC online, opens a bank account, and only later hears that California doesn’t let an LLC practice medicine or therapy. The fix is a professional corporation, and it’s worth setting up correctly the first time because the ownership rules are strict and the penalties for getting them wrong fall on the license.

If you’re a licensee deciding between entities, start with the rule that you probably can’t use an LLC, then read my LLC vs. S corp guide for the tax side once you know you’re forming a corporation.

What is a professional corporation in California?

A professional corporation is a regular California corporation that has qualified under the Moscone-Knox Professional Corporation Act to render professional services. The Act is known and cited by that name under Corp. Code § 13400, and its sections follow in order from there.

Under Corp. Code § 13401(a), “professional services” means services that can lawfully be rendered only under a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act. A professional corporation is one engaged in rendering those services in a single profession (§ 13401(b)). The General Corporation Law applies to a PC except where it conflicts with the Act (Corp. Code § 13403).

In plain terms, a PC gives a licensee the same corporate structure any business gets, with shares, directors, officers, bylaws, and its own tax return. What changes is ownership. Only licensees may own it, and the licensing board keeps watching it after formation.

Which professionals must use a professional corporation instead of an LLC?

If your work requires a state license and your profession’s statutes authorize professional corporations, you practice through a PC, a general partnership, or as a sole proprietor. An LLC isn’t available for that work.

The rule sits in the LLC statute itself. Corp. Code § 17701.04(e) says nothing in the LLC statute permits a domestic or foreign LLC to render professional services in California, using the Moscone-Knox definition of professional services. There’s a narrow carve-out in § 17701.04(b) for licenses where the Business and Professions Code expressly authorizes an LLC to hold the license. If you’re unsure whether your license is one of those, ask your board or ask me before you file anything.

For medicine, the Business and Professions Code states the underlying policy bluntly. Corporations and other artificial legal entities “shall have no professional rights, privileges, or powers” (Bus. & Prof. Code § 2400). A medical corporation that complies with the Moscone-Knox Act is the exception (Bus. & Prof. Code § 2402).

Professions that commonly form PCs in California include physicians, dentists, podiatrists, psychologists, marriage and family therapists, clinical social workers, professional clinical counselors, registered nurses, optometrists, chiropractors, acupuncturists, physical and occupational therapists, pharmacists, veterinarians, attorneys, and CPAs.

Is a limited liability partnership an option?

For five professions, yes. California’s registered limited liability partnership is limited to architecture, public accountancy, engineering, land surveying, and law (Corp. Code § 16101). Architecture’s eligibility runs only until January 1, 2034 (§ 16101(b)). A physician, dentist, or therapist can’t use an LLP, so the PC is the only limited liability entity for those practices. An LLP also owes the annual $800 tax (Rev. & Tax. Code § 17948). My partnership vs. LLC guide covers how LLPs and general partnerships compare.

Does my licensing board have to register the corporation?

It depends on the board. Some boards issue a certificate of registration before the PC may practice. Others, by statute, don’t require one.

Under Corp. Code § 13404, no professional corporation may render professional services in California without a currently effective certificate of registration from the agency that regulates the profession, except as the statute provides. Section 13401(b) then lists the boards whose PCs don’t need a certificate. Many online guides leave this out and tell every professional to register with their board, which sends doctors and dentists looking for a form that doesn’t exist.

Profession	Regulating agency	Certificate of registration required?
Physicians and surgeons	Medical Board of California	No (§ 13401(b))
Dentists	Dental Board of California	No (§ 13401(b))
Pharmacists	California State Board of Pharmacy	No (§ 13401(b))
Veterinarians	Veterinary Medical Board	No (§ 13401(b))
Architects	California Architects Board	No (§ 13401(b))
MFTs, LCSWs, LPCCs	Board of Behavioral Sciences	No (§ 13401(b))
Registered nurses	Board of Registered Nursing	No (§ 13401(b))
Optometrists	State Board of Optometry	No (§ 13401(b))
Attorneys	State Bar of California	Yes (Bus. & Prof. Code § 6160)
CPAs	California Board of Accountancy	Yes (Bus. & Prof. Code § 5150)

The exempt list in § 13401(b) also names the Podiatric Medical Board, the Osteopathic Medical Board, the Dental Hygiene Board, the Court Reporters Board, the Speech-Language Pathology and Audiology and Hearing Aid Dispensers Board, and the California Board of Occupational Therapy. For a profession not in the table, read your board’s statutes before you assume either way.

Exempt doesn’t mean unregulated. A PC remains subject to the rules, regulations, and disciplinary provisions that govern its profession, and to the powers of the regulating agency (Corp. Code § 13410(a)). A medical practice that wants to use a name other than the physicians’ own names needs a fictitious-name permit from the Medical Board (Bus. & Prof. Code § 2415), and that’s separate from the county filing covered in my DBA guide.

What the State Bar and the Board of Accountancy ask for

A law corporation is one registered with the State Bar with a currently effective certificate of registration (Bus. & Prof. Code § 6160). The application asks for the Secretary of State’s certified articles, the bylaws certified by the corporate secretary, the names and addresses of officers, directors, shareholders, and professional employees, each office address, and any fictitious name the corporation plans to use (Bus. & Prof. Code § 6161). An accountancy corporation is one registered with the California Board of Accountancy (Bus. & Prof. Code § 5150). Build the board application time into your opening date, because the corporation can’t practice until the certificate issues.

Who can own shares in a California professional corporation?

Licensees. Shares may be issued only to a licensed person or to someone licensed to render the same services where that person practices, and any shares issued in violation of that rule are void (Corp. Code § 13406(a)).

The same subdivision bars a shareholder from giving voting control to anyone outside the shareholder group. A voting trust, proxy, or other arrangement that vests a non-shareholder with authority to vote the shares is void. That rules out the silent investor who funds the practice in exchange for a vote.

Mixed-license practices

Some professions may share ownership with related licensees. Under Corp. Code § 13401.5, listed licensees may be shareholders, officers, directors, or professional employees of certain PCs, as long as their combined shares don’t exceed 49 percent and their number doesn’t exceed the number of shareholders licensed by the corporation’s own board.

For a medical corporation, the list includes podiatrists, psychologists, registered nurses, optometrists, MFTs, clinical social workers, physician assistants, chiropractors, acupuncturists, naturopathic doctors, professional clinical counselors, physical therapists, pharmacists, midwives, and occupational therapists (§ 13401.5(a)). A dental corporation may include physicians and registered dental hygienists, among others (§ 13401.5(n)). Physicians must still control a medical corporation. Each shareholder, director, and officer (other than an assistant secretary or assistant treasurer) must be a licensed person, subject to the mixed-license and small-corporation exceptions (Bus. & Prof. Code § 2408).

The one-owner PC

A solo practitioner doesn’t need a board of three. A PC with one shareholder needs only one director, who must be that shareholder and who is also president and treasurer, and the other officers need not be licensed (Corp. Code § 13403). With two shareholders, two directors are enough, and the two of them fill the offices of president, vice president, secretary, and treasurer. That’s why a solo dentist’s spouse can serve as corporate secretary without holding a dental license. The spouse still can’t own shares.

Does a professional corporation protect me from malpractice claims?

No. A PC can protect your personal assets from the corporation’s business debts, like a lease or an equipment loan you didn’t personally guarantee. It doesn’t stand between you and a claim for your own professional negligence.

The Act says so in its own way. Nothing in it affects the standards of professional conduct for licensees or “the professional relationship” between a licensee and the person receiving the services (Corp. Code § 13410(a)). Malpractice insurance handles that exposure. The corporate shield still matters for the other risks a practice carries, and it only holds if you run the PC as a real corporation. My guide to piercing the corporate veil covers what undoes it, and asset protection for physicians covers the rest of the picture.

How do you form a professional corporation in California?

Formation takes a few filings with the state, the corporate documents, and, for some professions, a board application. Here’s the order I follow.

1. Confirm the profession and the name. A PC may use any name permitted by the law or board rules that govern the profession, and the Secretary of State may require an affidavit showing the name complies (Corp. Code § 13409). Each profession has its own naming rules, so check yours first.
2. File Articles of Incorporation of a Professional Corporation. The Secretary of State’s Form ARTS-PC carries a $100 filing fee. The articles must state that the corporation is a professional corporation within the meaning of the Act (Corp. Code § 13404).
3. Adopt bylaws and issue shares only to licensees. The bylaws should track the statutory ownership and transfer limits, and the share certificates should carry the restriction.
4. Get the EIN and open the bank account in the corporation’s name.
5. Apply for board registration if your board requires it. The State Bar and the Board of Accountancy do. The Medical Board and Dental Board don’t.
6. File the Statement of Information. A stock corporation files Form SI-550 within 90 days of formation and every year after, with a $25 fee. My Statement of Information guide covers the details.
7. Sign a shareholder agreement if there’s more than one owner. It should cover what happens on death, disability, license loss, and retirement.
8. Decide the tax election with your CPA before the first payroll.

How is a professional corporation taxed in California?

A PC is a corporation for California tax purposes, so your practice files a corporate return, not a Schedule C. The Revenue and Taxation Code expressly includes any professional corporation incorporated under the Act in the definition of “corporation” (Rev. & Tax. Code § 23038(d)).

A corporation subject to the minimum franchise tax pays $800 a year (Rev. & Tax. Code § 23153(d)). A corporation that incorporates on or after January 1, 2000 isn’t subject to the minimum franchise tax for its first taxable year (Rev. & Tax. Code § 23153(f)). That first-year break is one small advantage a PC has over an LLC, which owes the annual tax from year one.

Many professional corporations elect S corporation status with the IRS. California then taxes the corporation at 1.5 percent instead of the regular corporate rate, and the $800 minimum still applies (Rev. & Tax. Code § 23802). An S election brings payroll and a defensible salary. My guides on C corp vs. S corp and S corp reasonable salary go through the tradeoffs.

I’m not a CPA and I don’t prepare returns. Take these questions to yours. Ask about C or S status for your income level, what salary you can defend, whether a retirement plan fits, and how the PC’s fiscal year should line up with your personal return.

What happens to PC shares when an owner dies or loses a license?

The shares have to leave the estate or the disqualified owner, and fast. If the corporation doesn’t buy the shares of a disqualified shareholder within 90 days of disqualification, or of a deceased shareholder within six months of death, and they aren’t transferred to the corporation, another shareholder, or a licensee, the board may suspend or revoke the corporation’s certificate of registration (Corp. Code § 13407).

Transfers are limited the same way issuance is. Shares may be transferred only to a licensed person, another shareholder of the same corporation, a person licensed in the same profession where that person practices, or a professional corporation, and a transfer in violation is void (§ 13407). The PC may buy back its own shares without the usual repurchase limits, as long as at least one share stays outstanding. Dentistry has a special rule. After a dentist’s death or incapacity, certain family members and representatives may employ licensed dentists and charge for their services for up to 12 months, and the shares must be transferred within that period.

A worked example

Two dentists in Camarillo each own 50 percent of a dental corporation. One dies in March. Her estate plan leaves everything to her husband, but he isn’t a dentist, so he can’t keep the shares. The corporation or the surviving dentist has until September to buy them, or the shares have to go to another licensee.

Without a buy-sell agreement, the widower and the surviving dentist negotiate a price under a deadline, with patients and staff watching. With one, the agreement sets the price formula, and life insurance on each dentist funds the purchase. That’s why I push every multi-owner PC toward a shareholder agreement at formation. My buy-sell agreement guide explains how to structure one, and what happens when a business owner dies covers the probate and trust side.

Can a living trust hold PC shares?

Plan this one carefully. An LLC interest usually goes straight into the owner’s living trust. PC shares may be issued and transferred only to the persons §§ 13406 and 13407 allow, so the trust question turns on your profession’s rules and on who the trustee and successor trustee are. The estate plan and the shareholder agreement have to be drafted together so the six-month clock after death doesn’t catch the family unprepared. My estate planning for physicians page covers the planning side for medical practices.

Frequently asked questions

Can a doctor form an LLC in California?

Not for the medical practice itself. California bars an LLC from rendering professional services (Corp. Code § 17701.04(e)), and medical practices use a medical corporation instead. A physician can still use an LLC for other ventures, like owning the building the practice leases.

Can my spouse own shares in my professional corporation?

Not unless your spouse holds the same license, or holds one of the related licenses that Corp. Code § 13401.5 allows to own a minority share of your type of corporation. Shares issued to anyone else are void under § 13406(a). Your spouse can serve as an unlicensed officer in a one- or two-shareholder PC under § 13403, but how a spouse’s community property interest is handled in a divorce is a family law question for family law counsel.

Does a medical or dental corporation need to register with its board?

No. Corp. Code § 13401(b) exempts professional corporations whose services are rendered by licensees of the Medical Board of California and the Dental Board of California, among others, from the certificate of registration requirement. Law corporations and accountancy corporations do need a certificate before they practice.

How much does it cost to form a professional corporation in California?

The state filing fee for Form ARTS-PC is $100, and the Statement of Information costs $25 each year. Board registration fees, where required, are set by the board. My flat fee to form a professional corporation is $4,500.

Can a professional corporation elect S corporation status?

Yes, if it meets the federal S corporation requirements. California taxes an S corporation at 1.5 percent of its net income and still collects the $800 minimum (Rev. & Tax. Code § 23802). Your CPA should run the numbers before you file the election.

What happens if I practice through an LLC by mistake?

The LLC isn’t authorized to render the professional services, so the practice has a licensing problem as well as a liability problem, and the structure has to be fixed. The usual fix is forming a PC or converting the entity, then moving the practice into it. Call before you unwind anything, because contracts, payer enrollments, and the bank account all have to follow.

Does a professional corporation need a board of directors?

Yes, but it can be small. A one-shareholder PC needs one director, who is the shareholder, and a two-shareholder PC needs two directors (Corp. Code § 13403). The PC should still keep minutes and hold its annual meeting.