Medical professionals in California who want to operate a legally compliant and structured business often form a Professional Corporation (PC). Unlike a standard corporation or LLC, a California Professional Corporation (PC) is designed specifically for licensed professionals, including physicians, surgeons, dentists, and other healthcare providers.
Forming a PC in California offers liability protection, tax benefits, and regulatory compliance, but the process requires careful attention to state laws and licensing requirements. This guide provides a step-by-step approach to forming a California Professional Corporation for medical professionals.
1. What Is a California Professional Corporation?
A Professional Corporation (PC) is a business structure that allows licensed medical professionals to provide services while maintaining limited liability protection. It differs from a general corporation or LLC because:
- Only licensed professionals can be shareholders.
- It must comply with California’s Medical Board regulations.
- It does not shield professionals from malpractice claims but does provide business liability protection.
Medical professionals commonly form Professional Corporations to ensure legal and tax compliance while protecting their business structure.
2. Benefits of Forming a California Professional Corporation
Medical professionals choose Professional Corporations for several reasons:
- Limited liability protection – Shields personal assets from business debts and lawsuits (except malpractice claims).
- Tax advantages – PCs allow for deductible business expenses and strategic tax planning.
- Regulatory compliance – Ensures compliance with California’s corporate practice of medicine laws.
- Easier business expansion – Facilitates hiring employees, expanding services, and structuring retirement plans.
- Professional credibility – Enhances trustworthiness with patients, employees, and financial institutions.
By forming a PC, medical professionals reduce financial risk while maintaining legal compliance.
3. Step-by-Step Process to Form a Professional Corporation in California
Step 1: Confirm Eligibility
- In California, only licensed professionals can form a PC.
- If you are a physician, dentist, chiropractor, psychologist, or other healthcare professional, you qualify to create a Professional Corporation under the California Business and Professions Code.
Step 2: Choose a Business Name
- The corporation name must comply with California law and include:
- “Medical Corporation” or
- “Professional Corporation” or
- An abbreviation such as “Inc.” or “PC”
- The name must be unique and cannot be misleading about services provided.
- Check name availability through the California Secretary of State website.
Step 3: File Articles of Incorporation
- Submit Articles of Incorporation (Form ARTS-PC) with the California Secretary of State.
- Information required includes:
- Corporation name
- Business purpose (e.g., medical services)
- Registered agent for service of process
- Number of shares authorized
- Filing fee: $100
Step 4: Appoint a Registered Agent
- A Registered Agent is required to receive legal documents on behalf of the corporation.
- The agent can be an individual or a registered business entity in California.
Step 5: Obtain an Employer Identification Number (EIN)
- Apply for an EIN (Tax ID Number) from the IRS at irs.gov.
- The EIN is required for:
- Opening a business bank account
- Filing taxes
- Hiring employees
Step 6: Create Corporate Bylaws
- Bylaws outline how the corporation will operate, including:
- Shareholder rights
- Board of directors’ duties
- Meeting procedures
- Bylaws are not filed with the state but are legally required for compliance.
Step 7: Appoint Directors and Hold Initial Board Meeting
- The board of directors must be licensed medical professionals.
- The board holds an initial meeting to:
- Elect officers (President, Treasurer, Secretary, etc.)
- Adopt corporate bylaws
- Authorize business banking and insurance policies
Step 8: File a Statement of Information
- Within 90 days of incorporation, file a Statement of Information (Form SI-200) with the California Secretary of State.
- Filing fee: $25
- This document updates the state about:
- Directors, officers, and business address.
Step 9: Obtain Necessary Licenses and Permits
- The Medical Board of California or respective professional board must approve the corporation.
- Additional licenses may be required, such as:
- DEA registration (if prescribing medications)
- Local business permits
Step 10: Open a Business Bank Account
- A separate corporate bank account is essential for:
- Managing finances
- Separating personal and business expenses
- Use the EIN and Articles of Incorporation to open the account.
Step 11: Obtain Business Insurance
- Professional corporations should have:
- Malpractice insurance
- General liability insurance
- Workers’ compensation (if hiring employees)
Insurance protects the business from lawsuits and financial loss.
Step 12: Set Up Payroll and Accounting
- Hire a CPA or use accounting software to manage:
- Payroll for employees
- Quarterly and annual tax filings
- Comply with state and federal tax laws to avoid penalties.
Step 13: Maintain Compliance and Renew Licenses
- File annual Statements of Information with the California Secretary of State.
- Renew business and medical licenses as required.
- Hold regular board meetings and maintain meeting minutes.
Failure to stay compliant can lead to penalties, suspension, or dissolution.
4. Common Mistakes to Avoid When Forming a Professional Corporation
- Failing to file necessary documents on time – Leads to penalties or dissolution.
- Not keeping personal and business finances separate – Can result in legal issues.
- Neglecting corporate formalities – Not holding meetings or keeping records can lead to piercing the corporate veil, exposing personal assets.
- Choosing the wrong tax classification – Consulting a CPA or tax attorney can ensure optimal tax benefits.
- Lack of malpractice insurance – Leaves the business financially vulnerable to lawsuits.
By following the correct legal steps and avoiding common mistakes, medical professionals can establish a successful and legally compliant Professional Corporation.
How We Can Help
At KMSD Law, we specialize in helping medical professionals establish and maintain Professional Corporations in California. Our legal team can:
- Ensure full compliance with California’s strict corporate laws.
- Draft and file all necessary documents with the Secretary of State.
- Provide tax and business structure guidance to maximize benefits.
- Handle ongoing compliance and corporate governance.
- Protect your practice from legal risks with expert legal advice.
We offer free case consultations to discuss your business formation needs. Let KMSD Law help you build a strong and legally sound Professional Corporation.