A professional corporation (PC) is a corporation that only licensed professionals, such as doctors, lawyers, accountants, architects and engineers, can own. Many states require these professionals to use a PC (or a PLLC) if they incorporate their practice. If you’re asking what is a professional corporation in practical terms: it gives you corporate liability protection for business debts and your colleagues’ mistakes, but never for your own malpractice.
What is a professional corporation for?
States created PCs to solve a specific problem. Licensed professionals owe special duties to clients and the public, and a regular corporation could, in theory, let them hide from malpractice claims behind the company. A PC gives them the corporate benefits while keeping them personally accountable for their own professional work. Because only licensed professionals can own shares, it also stops unlicensed people from practicing through a company they control.
Which professions have to use a PC?
It depends on your state. These professions commonly have to use a PC or a professional LLC:
| Field | Professions |
|---|---|
| Healthcare | Physicians and surgeons, dentists, chiropractors, optometrists, psychologists, physical therapists, pharmacists, veterinarians |
| Legal and financial | Attorneys, CPAs, enrolled agents |
| Design and engineering | Architects, engineers, land surveyors |
| Other licensed fields | Real estate brokers, insurance agents, social workers, marriage and family therapists |
Not every state requires a PC for every profession on this list. Some let licensed professionals use a regular LLC or corporation. Check with your state and your licensing board before you choose, because the answer really does vary.
How is a PC different from a regular corporation?
Day to day, a PC runs like any other corporation. It has a board of directors (who typically must be licensed), officers who handle operations, required annual shareholder and director meetings, minutes and resolutions, and its own bank accounts. The differences are about who’s allowed in.
- All shareholders must hold active professional licenses
- Owners usually must practice the same profession (only licensed attorneys can own a law PC, for example)
- No outside investors can buy shares
- Generally, other corporations or entities can’t be owners
| Feature | Professional corporation | Regular corporation |
|---|---|---|
| Who can own | Licensed professionals only | Anyone |
| Purpose | Professional services only | Any lawful purpose |
| Name requirement | Must include “PC” or equivalent | Inc., Corp., etc. |
| Malpractice liability | Personal liability remains | N/A (not for professionals) |
| State registration | Often requires licensing board approval | Standard incorporation |
| Tax options | C-Corp or S-Corp election | C-Corp or S-Corp election |
What does a PC protect you from, and what doesn’t it?
This is the part that trips people up. A PC limits your liability, but it has a hole right in the middle of it.
As a shareholder, you’re generally protected from business debts like loans, leases and vendor bills, from general negligence claims like a slip-and-fall in your office, from contract disputes, from employees’ non-professional misconduct, and from a fellow shareholder’s malpractice.
You’re still personally liable for your own malpractice, and possibly for the professional acts of people you directly supervise. A PC also won’t shield you from a debt you personally guaranteed, or from fraud or intentional misconduct.
Here’s how that plays out in a three-doctor practice. If Dr. A commits malpractice, Dr. A is personally liable. Drs. B and C aren’t, though the corporation itself may be liable, so the practice’s assets could be at risk. If the practice defaults on its lease, none of the three is personally liable unless they guaranteed it. The corporation’s assets are on the line, and their personal assets are protected.
That’s why you still need malpractice insurance with a PC. The entity doesn’t replace it.
PC vs. PLLC: which should you pick?
Many states offer both. The main differences:
| Feature | Professional corporation (PC) | Professional LLC (PLLC) |
|---|---|---|
| Governance | Board of directors, officers | Member-managed or manager-managed |
| Formalities | More formal (meetings, minutes) | More flexible |
| Default taxation | C-Corp | Partnership (pass-through) |
| Operating rules | Bylaws | Operating agreement |
| Ownership transfer | Stock transfers | Membership interest transfers |
If your state offers both, we’d lean toward the PLLC for most small practices. You get the same kind of liability protection with less paperwork, and you can still elect S-Corp taxation if it saves you money. A PC makes more sense if you want a traditional corporate structure or plan to stay a C-Corp.
A general partnership is the option to avoid. Partners have unlimited personal liability, including for each other’s business debts, and the partnership dissolves when a partner leaves. A PC continues indefinitely, and ownership changes by stock sale.
How is a professional corporation taxed?
By default, a PC is taxed as a C-Corp. The corporation pays 21% federal tax on profits, and shareholders pay tax again on dividends. The upside is that a C-Corp can offer tax-advantaged fringe benefits and keep earnings in the company.
Most PCs can instead elect S-Corp taxation by filing Form 2553. Profits pass through to the shareholders with no corporate-level tax, and you can save self-employment tax on distributions. You have to meet the S-Corp rules: no more than 100 shareholders, one class of stock, and shareholders who are U.S. citizens or residents. Most small professional practices take the S-Corp election to avoid double taxation.
Personal service corporation rules
A PC that stays a C-Corp may count as a personal service corporation (PSC) if its main activity is services in fields like health, law, accounting or engineering, and it’s at least 95% owned by employees performing those services. A PSC may be required to use a calendar year and may face certain deduction limits. PSCs can’t use graduated corporate tax rates, though with the flat 21% rate that no longer makes much difference.
How do you form a professional corporation?
- Confirm your state’s rules. Find out whether a PC is required for your profession, what the naming rules are, and whether you need licensing board approval.
- Choose a name. It typically must include “Professional Corporation,” “PC” or “P.C.”, be distinguishable from other registered businesses, and follow your profession’s ethics rules (law firms, for example, often must include partner names). Some boards have to approve it.
- File Articles of Incorporation with your state’s business filing office. Include the name, a statement that it’s a professional corporation, the profession(s) practiced, your registered agent and the incorporator’s signature.
- Get licensing board approval if your state requires it. That can mean registering with the board, proving every shareholder is licensed, and getting a certificate of authorization to practice.
- Write bylaws covering shareholder rights, board procedures, officer duties, meetings and restrictions limiting stock transfers to licensed professionals.
- Hold an organizational meeting to adopt the bylaws, elect directors and officers, authorize stock, open bank accounts and make tax elections such as S-Corp.
- Issue stock to the founders after confirming each one is properly licensed. Document their capital contributions, issue certificates and record them in a stock ledger.
- Get an EIN and business licenses, and register for state taxes if required.
Do step 1 before you file anything, and find out whether your board has to approve the name or ownership before the state filing. A name or ownership setup the board won’t approve means refiling.
What does it take to keep a PC in good standing?
Every year you’ll file the state annual report, renew every shareholder’s professional license, hold shareholder and director meetings, keep minutes and records, and file your tax return (Form 1120 as a C-Corp or 1120-S as an S-Corp). Some licensing boards want their own reports too.
To keep your liability protection, don’t mix personal and business money, carry adequate malpractice insurance, document decisions, make sure every shareholder stays licensed, and follow your profession’s conduct rules.
What if a shareholder loses their license?
They can’t stay a shareholder and have to sell or transfer their shares. Most states give a short window to do it (90 days, for example). Bylaws often give the remaining shareholders the first right to buy, usually at fair market value. If the shares aren’t transferred, the PC may face administrative dissolution. Put a buyout clause in your bylaws from day one so nobody has to negotiate this under pressure.
Frequently asked questions
Can a PC have employees who aren’t licensed?
Yes. Only shareholders need licenses. Receptionists, assistants and office managers don’t.
Can professionals from different fields form a PC together?
Usually not. Most states require every shareholder to be licensed in the same profession, though some allow related professions (such as doctors and nurses) to combine.
Can my spouse own shares in my PC?
Generally no, unless your spouse is licensed in the same profession.
Can I convert my sole proprietorship to a PC?
Yes. You form the PC and then transfer your sole proprietorship’s assets into it. Talk to a tax professional about the tax effects first.
Is a PC worth it for a solo practitioner?
It can be, especially with an S-Corp election. But if your state lets you use a PLLC or a standard LLC, that’s usually simpler for one person.
Before you file
Call your licensing board first. Whether your profession needs a PC, what the name must say and whether the board signs off before or after the state filing all vary, and the board can answer all three in one conversation. Then talk to an accountant about the S-Corp election, since that decision usually affects your tax bill more than the PC-vs-PLLC choice does.