Professional Corporations
1. What is a Professional Corporation or Professional LLC?
2. How is a Professional Corporation or Professional LLC formed?
3. What is an appropriate name ending for a Professional Corporation or
Professional LLC?
4. How is a Professional Corporation taxed?
5. Who can be a shareholder or director in a Professional Corporation?
6. Do any states not permit the use of a Professional entity?
1. What is a Professional Corporation or Professional LLC?
Professional
corporations and professional limited liability companies (PLLC's) are
corporations and limited liability companies organized for the purpose of
providing professional services. Usually, professions where the state requires a
license to provide services, such as a doctor, chiropractor, lawyer, accountant,
architect, or engineer, require the formation of a professional corporations or
PLLC
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2. How is a Professional Corporation or
Professional LLC formed?
Articles of
incorporation for a professional corporation and articles or organization for a
PLLC, are similar to those of standard corporations and LLCs. However, with
professional entities, the proper state licensing body must often approve the
formation documents before these documents can be filed with the secretary of
state. Further, the articles typically must contain the signature of a licensed
professional as the incorporator, and that person's license number, or a
certified copy of the license may be necessary as part of the filing
requirements. As a result, the filing time for professional entities may be
longer than the filing time for standard business entities.
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3. What is an appropriate name ending for a
Professional Corporation or Professional LLC?
A professional
corporation usually must end with the designation Professional Corporation or
the abbreviation P.C. The professional LLC uses the designation Professional
Limited Liability Company or PLLC.
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4. How is a Professional Corporation taxed?
A professional
corporation is taxed like a C corporation (unless they make the S corporation
election). However, some professional corporations do not have the advantage of
graduated corporate federal income tax rates. Professional corporations that are
"qualified personal service corporations" pay a flat federal income tax rate of
35 percent. "Qualified personal service corporations" provide services in the
fields of health, law, engineering, architecture, accounting, actuarial science,
or consulting. Professional corporations are allowed to file for S Corporation
status, this election allows for the entity to have pass-through tax treatment.
With pass-through taxation, the income to the entity is not taxed at the entity
level; however; the entity does complete a tax return. The income or loss as
shown on this return is "passed through" the business entity to the individual
shareholders or interest holders, and is reported on their individual tax
returns.
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5. Who can be a shareholder or director in a
Professional Corporation?
Many states
restrict who may be a shareholder or a director of a professional corporation.
The stock must be owned by either: employees performing the professional
services, retired employees who had performed such services, the estate of
someone who had performed such services, or someone who inherited the stock from
a deceased employee who had performed such services (but only for two years
after the date of death). Note, in some states only licensed practitioners of
the specific service that the corporation provides may own stock in the
corporation and serve on the board of directors. Other states require at least
50% of the shareholders and directors to be licensed professionals.
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6.Do any states not permit the use of a
Professional entity?
The state of
California does not permit limited liability companies to be formed to provide
professional services. California does, however, allow the formation of
professional corporations. |
