What Is a Professional Corporation (PC)?

A Professional Corporation (PC) is a special type of corporation designed for licensed professionals such as doctors, lawyers, accountants, architects, and engineers. State laws require many licensed professionals to use this specific business structure when incorporating their practices, providing liability protection while maintaining professional accountability standards.

Why Professional Corporations Exist

State licensing boards and legislatures created Professional Corporations to address a unique challenge: how to give professionals the benefits of incorporation while ensuring they remain accountable for their professional conduct.

The reasoning:

• Licensed professionals have special responsibilities to clients and the public
• Regular corporations could potentially shield professionals from malpractice liability
• PCs provide corporate benefits while preserving professional accountability
• Only licensed professionals can own shares, preventing unlicensed practice

Professions That Typically Require PCs

Requirements vary by state, but these professions commonly must use Professional Corporations (or Professional Limited Liability Companies):

Healthcare Professionals

• Physicians and surgeons
• Dentists
• Chiropractors
• Optometrists
• Psychologists
• Physical therapists
• Pharmacists
• Veterinarians

Legal and Financial

• Attorneys
• Certified Public Accountants (CPAs)
• Enrolled agents

Design and Engineering

• Architects
• Engineers (various disciplines)
• Land surveyors

Other Licensed Professions

• Real estate brokers
• Insurance agents
• Social workers
• Marriage and family therapists

Important: Not all states require PCs for all professions. Some states allow licensed professionals to use regular LLCs or corporations. Always check your state’s specific requirements.

How Professional Corporations Work

Formation Requirements

To form a Professional Corporation, you typically must:

1. Choose a compliant name: Must include “Professional Corporation,” “PC,” “P.C.,” or similar designation
2. File Articles of Incorporation: Specify it’s a professional corporation and the profession(s) practiced
3. Obtain professional licenses: All shareholders must be licensed in the profession
4. Register with licensing board: Many states require board approval or registration
5. Create bylaws: Establish operating procedures

Ownership Restrictions

Unlike regular corporations, Professional Corporations have strict ownership rules:

• Licensed owners only: All shareholders must hold active professional licenses
• Same profession (usually): Owners typically must practice the same profession (e.g., only licensed attorneys can own a law PC)
• No outside investors: Cannot sell shares to non-professionals
• Individual owners: Generally cannot be owned by other corporations or entities

Operating a Professional Corporation

PCs operate similarly to regular corporations:

• Board of directors: Oversees major decisions (directors typically must be licensed)
• Officers: Handle day-to-day operations
• Annual meetings: Required shareholder and director meetings
• Corporate formalities: Minutes, resolutions, record-keeping
• Separate finances: Maintain separate business accounts

Liability Protection in Professional Corporations

Professional Corporations provide limited liability, but with important distinctions from regular corporations.

What You ARE Protected From

As a PC shareholder, you’re generally protected from personal liability for:

• Business debts: Loans, leases, vendor payments
• General negligence: Slip-and-fall accidents, property damage
• Other professionals’ malpractice: A partner’s professional negligence
• Contract disputes: Business contract obligations
• Employee actions: General employee misconduct (not professional acts)

What You Are NOT Protected From

You remain personally liable for:

• Your own professional malpractice: You cannot escape liability for your own negligent professional acts
• Your supervisees’ professional acts: May be liable for negligence by those you directly supervise
• Personal guarantees: If you personally guaranteed a business debt
• Fraud or intentional misconduct: No entity protects against this

Example: Medical Practice PC

Three doctors form a Professional Corporation:

Dr. A commits malpractice:

• Dr. A is personally liable for their own malpractice
• Drs. B and C are NOT personally liable for Dr. A’s malpractice
• The corporation itself may be liable
• Corporate assets may be at risk

The practice defaults on a lease:

• None of the doctors are personally liable (unless they personally guaranteed)
• Corporate assets are at risk
• Personal assets are protected

PC vs Other Business Structures

Professional Corporation vs Regular Corporation

Professional Corporation vs PLLC

Many states offer both Professional Corporations and Professional Limited Liability Companies (PLLCs). Key differences:

Choosing between PC and PLLC:

• Choose PC if: You want a traditional corporate structure or plan to be a C-Corp
• Choose PLLC if: You prefer flexibility and default pass-through taxation

Professional Corporation vs Partnership

Taxation of Professional Corporations

Default: C-Corporation Taxation

Unless you elect otherwise, a Professional Corporation is taxed as a C-Corp:

• Corporation pays tax on profits (21% federal)
• Shareholders pay tax on dividends (double taxation)
• Can provide tax-advantaged fringe benefits
• Can retain earnings in the corporation

S-Corporation Election

Most PCs can elect S-Corp taxation by filing Form 2553:

• Pass-through taxation (no corporate-level tax)
• Self-employment tax savings on distributions
• Must meet S-Corp requirements (100 shareholders, one class of stock, etc.)
• Shareholders must be U.S. citizens/residents

Most small professional practices elect S-Corp status to avoid double taxation.

Personal Service Corporation Rules

Professional Corporations may be classified as Personal Service Corporations (PSCs) under tax law if:

• Principal activity is performing services in certain fields (health, law, accounting, engineering, etc.)
• At least 95% owned by employees performing those services

PSC implications:

• May be required to use calendar year
• Cannot use graduated corporate tax rates (flat 21% applies anyway now)
• Certain deduction limitations may apply

Forming a Professional Corporation: Step by Step

Step 1: Verify Requirements

Check with your state:

• Is a PC required for your profession?
• What are the specific naming requirements?
• Do you need licensing board approval?
• Are there any special filing requirements?

Step 2: Choose a Business Name

Your PC name must typically:

• Include “Professional Corporation,” “PC,” or “P.C.”
• Comply with professional ethics rules (e.g., law firms often must include partner names)
• Be distinguishable from other registered businesses
• Be approved by your licensing board (if required)

Step 3: File Articles of Incorporation

Submit to your state’s business filing office:

• Corporation name with professional designation
• Statement that it’s a professional corporation
• Profession(s) to be practiced
• Registered agent information
• Incorporator signature

Step 4: Obtain Licensing Board Approval

Many states require:

• Registration with the professional licensing board
• Proof that all shareholders are licensed
• Certificate of authorization to practice

Step 5: Create Bylaws

Draft bylaws covering:

• Shareholder rights and responsibilities
• Board of directors procedures
• Officer positions and duties
• Meeting requirements
• Stock transfer restrictions (to licensed professionals only)

Step 6: Hold Organizational Meeting

Initial meeting to:

• Adopt bylaws
• Elect directors and officers
• Authorize stock issuance
• Open bank accounts
• Make tax elections (e.g., S-Corp)

Step 7: Issue Stock

Issue shares to founding shareholders:

• Verify all recipients are properly licensed
• Document capital contributions
• Issue stock certificates
• Record in stock ledger

Step 8: Obtain EIN and Business Licenses

• Apply for Employer Identification Number (EIN)
• Obtain necessary business licenses
• Register for state taxes if required

Ongoing Compliance

Annual Requirements

• File annual reports with the state
• Renew professional licenses for all shareholders
• Hold annual meetings (shareholders and directors)
• Maintain corporate records and minutes
• File tax returns (Form 1120 for C-Corp or 1120-S for S-Corp)
• Submit licensing board reports if required

Maintaining Liability Protection

To preserve your PC’s liability protection:

• Keep finances separate – Don’t commingle personal and business funds
• Maintain adequate insurance – Professional liability/malpractice insurance
• Follow corporate formalities – Document decisions, hold meetings
• Ensure ongoing licensure – All shareholders must remain licensed
• Comply with professional ethics – Follow your profession’s conduct rules

What Happens If a Shareholder Loses Their License?

If a PC shareholder loses their professional license:

• They cannot continue as a shareholder – Must sell or transfer their shares
• Timeline requirements – Most states give a short window (e.g., 90 days) to divest
• Remaining shareholders have first right – Often bylaws give existing shareholders option to purchase
• Fair value required – Shares typically must be purchased at fair market value
• Failure to comply – May result in administrative dissolution of the PC

Frequently Asked Questions

Can a PC have non-professional employees?

Yes. While shareholders must be licensed professionals, employees (receptionists, assistants, office managers) don’t need professional licenses.

Can professionals from different fields form a PC together?

Usually no. Most states require all PC shareholders to be licensed in the same profession. Some states allow related professions (e.g., doctors and nurses) to combine.

Do I need malpractice insurance if I have a PC?

Yes. A PC protects your personal assets from business debts and other professionals’ malpractice, but you remain personally liable for your own professional negligence. Malpractice insurance is essential.

Can my spouse own shares in my PC?

Generally no, unless your spouse is also licensed in the same profession. This restriction preserves the integrity of professional ownership.

Can I convert my sole proprietorship to a PC?

Yes. You’ll form the PC, then transfer assets from your sole proprietorship to the new corporation. Consult a tax professional about the tax implications.

Is a Professional Corporation Right for You?

A PC makes sense if:

• Your state requires it for your profession
• You want liability protection from partners’ malpractice
• You prefer a corporate structure
• You plan to elect S-Corp taxation
• You’re ready to handle corporate formalities

Consider alternatives if:

• Your state allows professionals to use standard LLCs
• You want simpler administration (PLLC may be better)
• You’re a solo practitioner (simpler structures may work)

Next Steps

1. Check state requirements – Confirm whether a PC is required or optional
2. Consult with professionals – Attorney and accountant familiar with your profession
3. Contact your licensing board – Understand their specific requirements
4. Choose your structure – PC, PLLC, or standard LLC if permitted
5. Form and register – File with the state and licensing board
6. Make tax elections – S-Corp election if desired

Professional Corporations provide an essential structure for licensed professionals who want corporate benefits while maintaining the accountability their clients and the public expect. Understanding the unique rules and limitations helps you operate your practice effectively and protect your personal assets.