How to Form a Professional Corporation?
Are you an accountant, engineer, lawyer, social worker or health care professional? Is so, you will want to learn about structuring your company as a professional corporation. You will also want to find the fastest and most affordable way to do so.
Depending on which state you reside or do business in, you may be required to incorporate in this manner. In this entity, owners act as employees for the business. Like any other corporation, the purpose is to separate personal assets from the assets of the corporation. This is especially important in licensed professions, where the corporation may be targeted by lawsuits due to negligence or malpractice by a business owner. While the professional corporation does not protect an individual practitioner’s personal liability due to their own negligence, it does protect the corporation and other members as a whole.
A professional corporation can be set up as an LLC, C-Corporation, or S-Corporation, with a subcategorization of professional corporation (PC) or Professional Services Corporation (PSC). A PC is formed at the state level while a PSC is a designation at the federal level for tax purposes. A PSC must qualify as a PC.
How to: Shareholders and Directors
Check with the rules in your particular state regarding who can be a director or shareholder in the professional corporation, as some states require the corporation to have a certain number of members licensed in the profession.
Advantages of Professional Corporations
- Limited Liability – the biggest advantage of filing as a professional corporation is protection of personal assets from creditors and lawsuits. If the corporation or one of its members is sued or files bankruptcy, only the assets of the corporation are at risk. If an owner is sued for malpractice and the result is their own negligent or criminal action, the corporation is not liable for this judgement either.
- Taxes – Professional corporations have tax-free benefits such as health and life insurance for employees through a Voluntary Employees’ Beneficiary Association. Retirement and 401(k) plans have higher contribution limits. Taxes for disability insurance, dependent care and other benefits are deductible as well.
- Perpetual Existence – If a shareholder or owner dies, the corporation continues as usual.
Disadvantages of a Professional Corporation
In the event of business losses, there are limitations on deductions for nonactive shareholders. As most shareholders are active, this is not usually a concern. Taxes – the flat corporate tax rate can reduce the flexibility in distributing income to shareholders or employees.
How to form a professional corporation online
You have two options:
- Do it yourself
- Use an online professional service
When using one of our recommended professional services, you will want to choose the C-Corp entity in order to incorporate as a professional corporation.
Top online Professional Corporation filing services
The best all-round corporation filing service
Pros & Cons
You can register your LLC or corporation with SwyftFIling in less than 10 minutes. The standard package includes everything you need to launch your business including: Verify Company Name Availability, Preparation of Articles of Organization, Document Filing with Secretary of State, Online Access to Your Incorporation Documents, Lifetime Customer Support (Phone & Email), Free 30 Minute Business Tax Consultation, ComplianceGuard™ Company Alerts, Free Domain Name, Custom LLC Operating Agreement, Custom LLC Banking Resolution and more.
Award winning corporation formation service
Pros & Cons
You can register your corporation with MyCorporation for $99 (+State fees) using MyCorporation online filing service. The basic package will not cover all the essentials for your business and will not include a Registered Agent service and Annual Reports.
Ready to Incorporate?
Check with your tax advisors and discuss the advantages of a professional corporation versus another entity such as a limited liability corporation (LLC) or limited liability partnership (LLP). How many owners and the nature of your business will be deciding factors. As mentioned, some states require licensed professionals to take on this designation and some states give you more choices.